Capturing opportunities while helping kiwi companies raise capital

18 May 2020

With the effect of Coronavirus dominating the headlines around the world, we thought it was important to share our view on what is happening in the markets and what the key factors affecting your investments are during this time.

Covid-19 has changed the way that Kiwi’s live, work and play. For some of us, this means working from home (and putting up with homemade coffee), while for others, it’s a lot more serious – jobs have been lost and decisions now have to be made on how to continue supporting themselves and their families and secure new work.

These changes also affect businesses in different ways. While a healthcare company might be facing surging levels of demand for their products, most companies are feeling the negative effects of Covid-19 as they are unable to sell their goods and services as they used to. And just like a household facing a drop in income while still having to pay rent or a mortgage, a company facing a drop in income while still having to pay wages, rent and business costs is also likely to be feeling the pinch.

How will businesses recover?

For companies listed on the stock exchange, a capital raise is one way to get through this period. A capital raise involves issuing new shares and selling them to investors to raise cash. There are a few different reasons that a company may want to do this. During good times a company may want to use a capital raise to fund a new project or planned growth in their business. However, in times like this, many companies may use the capital raise to help temporarily cover their day-to-day operating expenses until their revenue streams are able to pick up again.

Capital raise - good opportunity and a good deal?

For our investors, capital raises can provide some attractive opportunities. The share price that companies raise capital at is usually a bit cheaper than what the shares have recently been traded for. This is to entice investors to invest additional money into the company. Despite the discount being offered, it is always important to be selective when thinking about a new investment.

How our Booster team selects suitable companies for investment

Our Research Team has a few things that they consider before taking part in any capital raising investment opportunities.

We need to make sure we are investing in a quality company that we would normally be happy to invest in, without the enticement of the discounted share price. We also need to make sure that the funds being raised will be enough to help the business achieve their stated goals and they won’t be required to look for further assistance from investors again at a later date. Most importantly, we need to be comfortable that the price (even with the discount) is attractive, given the uncertainty the business faces.

Which capital raising companies have we backed so far?

Given these considerations, we have supported the following companies by participating in their recent capital raises:

AirnzAuckland Airport; New Zealand’s primary gateway to the rest of the world. With the borders closed, Auckland Airport found themselves needing additional funds to cover their expenses until both domestic and international flights can resume. Despite the short-term impact Covid-19 is having on their business, Auckland Airport are still likely to be a strong company when New Zealand and then the world starts get backing to a bit of normality.

KathmanduOutdoor clothing and equipment retailer Kathmandu. With their stores having to close during lockdown, Kathmandu have seen a short-term impact on their sales. But alongside their recent purchase of the surfing brand, RipCurl, Kathmandu offers strong brands that are likely to position them well to increase sales when the economy starts to recover.

Vista Group, which provides software to over 50% of the world’s largest cinema chains. While Covid-19 has clearly impacted the cinema industry with many cinemas having to temporarily close worldwide, Vista leads the industry globally and is well placed to benefit once cinemas are able to reopen.

Investing in future opportunities

Although each of these businesses have been impacted by Covid-19, in the longer term we expect them to bounce back strongly. We have therefore taken the opportunity to invest into these quality companies and at a discounted price. It’s also good to know that your investments are supporting New Zealand companies and communities. This investment enables them to continue to operate and employ thousands of Kiwis, all while working hard to help you reach your financial goals.

What’s happening in the markets in April? 

The global share markets continued to rebound from late-March and strongly through April, largely thanks to some businesses starting to open up a bit more and governments pouring lots of money into supporting their economies.

The US share market was particularly strong rising 12% and NZ shares also doing well returning 7% in April. This quick rebound in share markets really highlights the importance to staying invested throughout these times of volatility in the markets, even with the doom and gloom headlines of the news headlines causing a bit of a distraction from your long-term investment plans.

With this strong rebound in April, this also flowed through to our own investment portfolios due to a few of our different investment strategies. Our active management strategies provided positive results during the year and fixed interest investments provided the diversification benefits we expected during times like this. Looking back to March last year, all of the core Booster Multi-Sector Funds have delivered positives returns - despite the recent volatility.

 

“Booster KiwiSaver Scheme is managed and issued by Booster Investment Management Ltd. A copy of the Product Disclosure Statements are available at www.booster.co.nz. A disclosure statement is available from your financial adviser, on request and free of charge."

Daniel Haskell

By Daniel Haskell

Booster Adviser