The Audinate Share Purchase Plan (SPP) Doesn’t Look Great (ASX:AD8)

One question I have had a lot lately is whether I will participate in the Audinate (ASX: AD8) Share Purchase Plan. As I covered previously, I think that the forecast Audinate results are quite disappointing, and I expected the share price to fall when they were announced.

The Company had A$29.3 million in cash at 30 June 2020, so the prognosis for future performance must be pretty uninspiring if the recently announced capital raising for $28 million at $5.15 per share was truly necessary. Loyal retail shareholders are left holding the bag for Audinate’s unwillingness to spend within its means, given that they now face dilution. You can currently buy shares in Audinate at $5.17 on market.

It’s also worth noting that in July last year, Audinate had a share purchase plan at $7, and “applications received exceeded A$37 million resulting in the SPP being approximately 9x oversubscribed. Therefore, in accordance with the terms of the SPP, the Board was required to scale back the allotment of shares to ensure that subscriptions under the SPP do not exceed the cap of A$4 million.” That’s right, the company gave back money for shares at $7, and only provided a piddling offer for retail shareholders for that in-the-money SPP, but will provide $12m capacity for the current at-the-money offering.

That means we have a logical dichotomy. Either the pandemic has had such a profoundly negative impact on the company that the current much lower capital raising is prudent and wise, or else management have not been doing a very good job managing cash flow. I’m guessing the former.

Long term, I strongly suspect the current offering will look good. Eventually, demand for Audinate’s chips and software will pick up again. Having said that, I’m taking more of a wait and see approach to the company and would feel more optimistic if they had chosen to tighten the belts rather than raise capital while things are looking bad.

Should I Participate In The Audinate Share Purchase Plan?

At this point, I don’t see myself buying shares in the Audinate SPP. I think I’d need to see the share price get above $5.40 to even be tempted in taking a small allocation in the Audinate Share Purchase Plan. Having said that, I do think that once the overhang of the SPP is cleared the share price might rise so there could be a good opportunity to pick up some shares if the price drops to around $5.10, though as I said, I’m taking a wait and see approach, personally.

Ultimately, given the clear negative impact this pandemic is having on Audinate, I’m not very enthusiastic about the company and largely just hold some shares so I pay attention to it. In the very long term, I still think this is a great Aussie business and would definitely consider adding to my position if I felt it was more attractively priced.

Save time at tax time: A Rich Life depends on Supporters to pay for its free content, so if you’d like to try Sharesight, please click on this link for a FREE trial. It saves me heaps of time doing my tax and gives me plenty of insights about my returns. If you do decide to upgrade to a premium offering, you’ll get 4 months off your subscription price (the best deal available, I’m told) and we’ll get a small contribution to help keep the lights on.

If you’d like to receive a occasional Free email with more content like this, then sign up today!

This post is not financial advice, and you should click here to read our detailed disclaimer. The author owns shares in Audinate but will not trade them within 2 days of publication.