Where next as Zip completes $120 million insto placement?
The Zip share price rose firmly after the company said it was looking to raise as much as $150 million – through an institutional placement and share purchase plan.
It’s been a busy 24 hours for Zip.
What started out as musings in the Australian Financial Review's Street Talk section on Wednesday, turned into an after-market announcement concerning plans for a $150 million cap raise.
That raise, the company told the market on Wednesday night, would be made up of a $120 million (underwritten) intuitional placement and a $30 million (non-underwritten) share purchase plan for existing and eligible shareholders.
Zip (Z1P) said it would use these fresh funds for four key purposes: accelerate US growth, expand UK reach, enter new markets and expand their product line-up. Of the $150 million set to be raised, the majority – a cool $85 million – is set to go towards pursuing US expansion.
According to the company, the US market in particular represents a 'significant opportunity' given the country's significant US$5 trillion addressable retail market. By comparison, while the UK market represents a smaller opportunity – with the total addressable retail market pegged at $600 billion, Zip is still pursuing expansion, with $15 million of the funds raised set to go towards expansion in that market.
Elsewhere, Zip also revealed it had made investments in spotii (an UAE-based BNPL player) and twisto (EU-based payments company).
The Zip share price hit an intraday high of $5.90 per share in response to this news, though drifted lower by 12:25PM, to $5.74 per share.
$120 million in the bag
Zip revealed it had successfully completed the institutional portion of the raise on Thursday morning – noting that the placement was oversubscribed. The shares under the placement are set to be issued on December 22.
Under that portion of the raise, some 22.47 million new shares will be issued at $5.34 per share, representing a modest discount to the stock’s last traded price.
In response to this, Zip’s MD and CEO, Larry Diamond, said:
'We are grateful for the support of existing shareholders that participated in the raise, as well [as] new long-term shareholders that joined our register, supporting our objective of making Zip the first payment choice everywhere and every day.'
'The additional growth capital will enable Zip to capitalise on the successful acquisition of Quadpay in the US, scale Zip's operations in the UK, lead the active pursuit of global growth opportunities and support the launch of Zip Business,’ Mr Diamond continued.
RBC analysts, who remain bullish on the stock, said that the market had likely been factoring in Zip’s need to raise additional capital in recent times, which may explain the company’s recent share price underperformance relative to BNPL rival Afterpay. Despite that, the investment bank said:
‘The raising removes this overhang and looks large enough to cover a material pick-up in investment into growing the business globally. New geographies will be revenue accretive, however the increased investment flagged will likely see downside to our current earnings forecasts over the next couple of years as OPEX increases.’
RBC has a $10.00 price target and an Outperform rating on Zip.
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