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Zip share price: where next as $60m capital raised announced

With Zip’s stock currently in a trading halt, we examine the details of the fast-growing company’s planned $60 million capital raise.

The Zip (ASX: Z1P) share price was today put in a trading halt after the company annouced plans to pursue a fresh capital raise.

The broad strokes of this decision were simple: shore up the company’s balance sheet and pursue global expansion at an aggressive rate.

Prior to today’s announcement, Zip’s stock traded at $3.92 per share – a significant 256% higher than it did in January – though a slight ways off its 52-week high of $5.860 per share.

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Details of the raise

Firstly, as part of Zip’s just-announced capital raise, the company will seek to secure $50m in fresh capital from professional and sophisticated investors.

On this front, the company will issue roughly 13.5 million new shares at an offer price of $3.70 per security – representing a 5.6% discount to yesterday's last traded price of $3.92.

An additional $10m will be raised through a share purchase plan (SPP), that will be available to all current and eligible shareholders.

Under the share purchase plan individual investors will be able to purchase up to $27,000 worth of Zip shares – though this may be scaled back at the company’s discretion.

What will Zip use the funds for?

Zip will primarily use the potential funds of today’s announced capital raise to speed up global expansion, expand the company’s product offerings, increase investment in product and further strengthen the company’s balance sheet.

Specifically, and on the front of growth, the young company intends to:

'Launch and grow Zip's operations in the United Kingdom. Capitalise on the emergence of BNPL in a $630B market.'

More specifically, funds from the capital raise will help:

'Launch and accelerate the growth of Zip Biz, Zip's Buy Now Pay Later solution for small businesses.'

Beyond that, and speaking to the growth focus – as well as the prudence of Zip’s management team – it was noted that the funds from the cap raise would help:

'Strengthen the balance sheet to support a growing receivables book as transaction volumes increase.'

Hyper-growth is indeed a costly business.

Zip share price: where next?

Zip (ASX: Z1P) also took today’s capital raise announcement – coinciding with the release of its AGM Presentation – to tout the continued growth of the company and the buy now pay later sector more generally.

Here the company reiterated its ambitious operational targets of reaching 2.5 million consumers and $2.2 billion in annualised transaction volumes (GMV) by June 2020.

‘We are confident in our ability to drive growth, achieve targets, and expand globally with a deliverable lift, shift & scale strategy.'

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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