14 February 2022 - Unexpected Inflation Figures

The second week of February reflects the ongoing challenge facing equity capital markets, with subdued activity from both investors and companies due to global tensions surrounding inflation and geopolitical conflict.

Capital raising activity has remained stagnant with only 10 companies raising via placements across the market.

Not only is this reminiscent of last week's activity, we've also observed several instances of shortfall placements for alternative raise structures (entitlement offers and rights issues) which suggests that some companies are struggling to assuredly raise the capital they require in the original structure of their capital raise.

Market Summary

While global markets saw a recovery from January lows, this was curtailed by the release of new inflation data from the US with inflation hitting a 40 year high at 7.5% from a year earlier.

This was higher than expected with economists expecting an annual figure of 7.3% and investors were subject to market volatility as futures markets began aggressively price in the potential of a 50 basis point or higher increase in interest rates by the Federal Reserve.

The question that remains is how much interest rates will be raised and at what increment, as transitory inflation has shown itself to be significant and structural.

It's clear to see that capital raising activity is affected by this market tension, as companies and investors alike may hold off on any non-essential capital activity to best understand the next course of action.

We'll better understand the economic implications of these interest rate increases once they actually occur, and whether they've been too heavily priced into current equity valuations or if there's more volatility ahead.

Placement Breakdown

Capital raising activity has moved sideways from last week in the second week of February, with only 10 companies raising via placements across the market. However, there was a substantially larger amount of capital raised, a total of $326m, largely a result of two placements from Syrah Resources Limited (ASX:SYR) and Nickel Mines Limited (ASX:NIC).

The average discount was 12.58%, a jump from what we've observed throughout the year, which may suggest that companies are starting to raise discount rates in a bid to better secure funds from investors.

Activity was split amongst three sectors (energy, materials & utilities) but materials was the standout this week with 8 placements and $299m in capital raised. $148m Placement from Nickel Mines Limited (ASX:NIC) with a discount of 5.84%. The company is a low cost producer of nickel pig iron (NPI) which is a key component in stainless steel production. Funds are to be used towards the 30% initial acquisition of Oracle Nickel Project (ONI).

$125m Placement from Syrah Resources Limited (ASX:SYR) with a discount of 10.3%. This company specialises in industrial minerals and technology with a flagship operation in Mozambique. Funds are expected to be used towards the capital costs of the Vidalia expansion and operations.

90 Days Post Placement Performance

As we look back on placements from the end of September 2021, performance was muted compared to prior weeks with a 90 day performance lead of 35% from Sandfire Resources Ltd (ASX:SFR).

Check out our Past Capital Raises page for more information on past transactions. If you want more information on Fresh Equities and how we work, feel free to contact our team at clients@freshequities