21 February 2022 - Looming Conflict

Equity capital markets continue their trend of high uncertainty in the 3rd week of February, with 2022 throwing obstacle after obstacle for investors and companies alike. Capital raising activity has again remained largely muted with 14 companies raising via placements across the market, an ongoing reflection of investor and company sentiments.

We saw substantial discounts in the consumer and energy sectors for placements last week, which may suggest that companies are now looking to lift discount rates in response to weakened investor demand to assuredly raise the capital they require.

It will be interesting to see how this progresses over the year, as looking ahead currently shows little relief for the markets.

Market Summary

Global markets have continued to digest and price in potential interest rate hikes for this year off the back of surging inflationary pressure. With the first hike for the Federal Reserve expected in March, market participants are bracing for what's expected to be an aggressive initial hike to combat higher than expected inflation.

An ongoing development for last week is the escalating tension between Russia and Ukraine, with as many as 190,000 Russian personnel mobilised in and around Ukraine. Markets remain glued to social media feeds for updated news from Ukraine, as any further escalation may result in a legitimate conflict that would spell chaos for markets worldwide. The most recent news shows that Putin and Biden have agreed to try and secure a ceasefire, with plans for an urgent summit to discuss security and strategic stability in Europe.

Placement Breakdown

Capital raising activity was slightly up from last week with 14 companies raising via placements across the market. While total funds raised were $116n and there were more capital raises, this was a substantial drop from last week in terms of funds raised.

Activity was largely focused in materials with 11 raises, but we saw the return of industrials, energy and consumers with each sector having a single raise. Materials remained the frequency and total funds raised leader with $76m in capital raising activity.

The average discount was 13.76%, another jump from what we've observed throughout the year. It's worth noting that two sectors (energy and consumers) are contributing heavily to this increase with high discount rates of 30% and 23% respectively.

• Halo Food Co. (ASX:HLF) raised $3.5m via a placement and announced plans to raise a further $3m through a Share Purchase Plan. Funds are to be used towards the acquisition of The Healthy Mummy, a digital health and wellness company. Over $800k in synergistic value is expected to be realised from the in house manufacturing of THM's products. New shares were issued at a 23% discount to the closing price prior to trading halt.

• 88 Energy Limited (ASX:88E) raised $32m via an oversubscribed placement, which was increased to satisfy investor demand. Funds are to be used in conjunction with existing cash reserves to fund the planned Merlin-2 well drilling and appraisal activities including a flow test program, contingencies, new ventures, portfolio expansion opportunities and working capital requirements. New shares were issued at a 30% discount to the closing price prior to trading halt.

90 Days Post Placement Performance

As we look back on placements at the start of October 2021, performance was largely close for the best and worst performers, with the sole exception being Castle Minerals Limited (ASX:CDT) who posted an insane 358% return at 90 days post placement.

Other performers for the week were close to each other, ranging from a high of 22% down to a -27% loss. When accounting for returns up until the 18th of February 2022, CDT settled down slightly at a still insane 350% return. Alligator Energy Limited (AGE:ASX) also reverted from a 22% return at 90 days post placement to a flat 1% as of last Friday.

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