Strix Group Plc (KETL)
Strix has completed a new equity placing initiated by an investor that will raise approx. £8m of proceeds, with the placing shares expected to be admitted to trading on 14 June. The funds will accelerate the pace at which it achieves self-imposed targets on the level of headroom on its key banking covenant. As such, the refinancing of the Group’s banking facility set for 2025 should now be on more favourable terms. The group can now speed up investment in sustainable growth should suitable opportunities arise, while remaining cognisant of the balance sheet.
10.9m shares have been placed at a price of 80p representing nil discount to the prior closing level. The placing shares represent approximately 5% of the issued share capital. The driver for the placing originated from an enquiry from an existing investor wishing to invest in up to a further 5% of the Company. 20% of the placing had been subject to clawback from existing shareholders, with the unnamed investor allocated 80%.
Concern that the Group may have missed its key banking covenant had resulted in the Strix share price falling by 38% overnight at the time of the interim results in September last year. Since then, the Company has intensified its actions on cash conservation, which are currently ahead of plan.
We have estimated net proceeds of £8.1m. Although the interest rate payable is currently in high single digits, we have applied a very conservative coupon on the cash saving. As such, our view is that there is limited dilution to adj. EPS in the current year (-0.6%) on a diluted and weighted average shares basis and modest dilution (-6.0%) in FY25 as the higher number of shares fully kicks in.
The placing enables the Group to achieve its stated goal of a net debt/EBITDA ratio of 2.0x ahead of the year end. Our previous estimate was 1.9x by the end of FY24; this now falls to 1.7x, leaving significant headroom on all covenants. The Company has guided that it should achieve the 2x target four to six months earlier. Similarly, the covenant reduces to 1.4x by the end of FY25 following the placing. The headroom is likely to result in improved terms when the bank facility is renewed in 2025 and will allow the Group to take opportunities to invest in new technology should opportunities arise.
Fair value
We have slightly reduced our fair value to 167p / share, reflecting the level of adj. EPS dilution. In our view, the Group remains materially undervalued relative to its peers, particularly now its balance sheet has been strengthened.
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