PHANTOM SHARES: The Finance Ghost: Afrimat and Ascendis — capital raises for different reasons

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Companies list on the JSE for several reasons, with a major driver being the allure of tapping the market for capital when needed. Not all equity raises are created equal though, with Afrimat and Ascendis Health providing the perfect contrast this week.

Afrimat is one of the best companies on the JSE, with a great track record of delivering value for shareholders. The company is pushing forward with two major projects and needed to raise equity capital to supplement the existing balance sheet.

Ascendis also starts with the letter “A” and is also listed on the JSE. That’s where the similarities to Afrimat end, particularly when it comes to track record. Ascendis has been a mess when plotted on a long-term chart and has been through an incredibly tumultuous period of management changes and predatory lenders who use debt as a hook to get their hands on the operational assets.

When a company is performing well and supported by the market, a capital raise can take the form of an accelerated bookbuild through which institutional investors are invited to apply for shares. When things are rough, a rights offer is the right approach as not many people would’ve lined up for a small helping of Ascendis shares and certainly not at anything close to the traded price.

Woolworths released an update for the 52 weeks ended 26 June and things aren’t good in Woolworths Food, with slower sales growth and price increases of just 3.5%, as the group struggles to make its food more expensive than it currently is. Competition is really biting hard now. The rest of the business has been doing poorly in recent years and is starting to turn a corner, with a solid increase in sales despite a decrease in trading space, driving margins.

 

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