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Printed: 07 July 2022 7:44 PM

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09 Jun 2022 - Is this a buying opportunity?
By: Equitable Investors

Is this a buying opportunity?

Equitable Investors

May 2022


"RECAPITALISATION" OPPORTUNITY
There was a brief period following the March 2020 COVID-19 market panic when funding looked like it would be hard to come by and companies did whatever it took to raise cash. But central bank liquidity flowed and equity capital followed. In 2022 things are different. After taking funding for granted for many years, we expect many businesses are going to become increasingly desperate for cash as the year progresses.

The $US146 billion of equity capital raised globally in the March quarter of 2022  sounds like a huge number but was down 69% from $US476 billion a year earlier and 58% from the December quarter (using dealogic data). The current quarter is running lower still.

We have identified almost 400 "cash burners" on the ASX (ex resources). Nearly half of these cash burners did not have the funds to make it past 12 months based on their March quarter cash burn. It may not be a complete surprise to you that the sector with the most companies facing one year or less of cash funding is Software and Services. Biotech and Health Care unsurprisingly represent nearly 30% of these companies.

The great opportunity in this is for investors to identify situations where capital availability can make a huge difference to valuation, either in isolation or with a few changes and greater fiscal discipline. We think this "recapitalisation" opportunity is a huge opportunity and an exciting time for a firm such as Equitable Investors that applies bottom-up, fundamental research and constructively engages with companies.

We are inviting follow-on and new investments in Dragonfly Fund to pursue such opportunities over the next 12 months. Applications (for wholesale investors only) can be made here.


Funds operated by this manager:

Equitable Investors Dragonfly Fund


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