Retailer Mr Price Group has announced a proposed capital raise of up to 10% of the company’s ordinary issued shares, as the country’s lockdown takes a bite out of revenue.
The nationwide lockdown, which was instituted in late March and allowed only essential goods to be sold throughout April – meant that the group was unable to generate revenue during the period.
In an update to shareholders on Wednesday, Mr Price said its financial position remains “sound”, and the proposed capital raise is in the interests of continued growth.
Analysts earlier argued that Mr Price, Truworths and TFG were among the apparel retailers likely to be more heavily impacted by the lockdown period in terms of clothing and accessories’ contribution to their total revenue, but that Mr Price’s margins allow the group more resilience.
The retailer said the capital raise – which is intended for an “appropriate point in time and as market conditions permit”, according to the statement – would allow the group to continue chasing growth opportunities already in its sights.
“Internal market research has identified attractive growth areas and a capital raise will enable the company to pursue and accelerate these growth opportunities, whether they are organic or acquisitive in nature. The board and management are of the view that market conditions will allow strong companies to capitalise on these opportunities whilst maintaining financial flexibility.
“The group needs to be well positioned to respond, with speed and agility, without being compromised by the status of prevailing equity markets at a particular time,” the statement said.
It added that the company had set “clear guidelines” for possible acquisitions, and that there was no “must acquire” mentality. The proposed capital raise remains subject to shareholder approvals.
Retail analyst Syd Vianello said on Wednesday the proposition was “intriguing” and had come as a surprise. However, he noted that the timing was crucial. “They are not looking to raise the money tomorrow,” he said, adding that the current share price was not conducive to raising large amounts of capital – rather, the move was likely a failsafe that would allow the group to move quickly if an attractive opportunity should arise in future.
Mr Price shares closed at R119.00 on Wednesday, compared to R192.10 a year ago, and a 52-week high of R213.13.
It was unclear what the shareholder response might be, Vianello said. Given that there is no guarantee that financing will be readily available from banks in the foreseeable future, it makes sense to try to ensure that “firepower” is available, he noted.
But, he added, there could be a “component” of doubtful responses from shareholders to the strategy.
“Mr Price is not known for making acquisitions. That has not been their growth strategy to date,” he said. “Shareholders will have to put their faith in management, that they will be responsible custodians of the company.”