Platinum Capital Ltd [ASX:PMC] invests in undervalued securities across the world, ranging from funds to individual securities. In trading today, the stock was bid up 2.58%, to $1.59.
What happened to PMC shares?
This morning, PMC announced a successful purchase plan. The company already raised $53.5 million in capital from institutional investors. This equated to 35.4 million ordinary shares offered at $1.51.
Now the company is allowing shareholders to have their turn. They can buy new shares on the same terms as institutional investors. But they will not receive the interim dividends recorded on 22 February 2017.
What now for Platinum Capital?
Issuing shares to raise capital is common for listed companies. But it might not always be an avenue to increase cash reserves.
Issuing shares just to increase cash is damaging to shareholder value. As more shares begin to circulate, shareholders’ interest becomes diluted. They also have to share future profits with more owners, resulting in earnings per share (EPS) suffering.
When is it a good idea to issue shares?
If the company can use funds to enter new markets or pay off debts, it’s a good idea. Hence, funds go towards increasing profitability and viability of the business.
So what will PMC use the funds for?
They will seek out more investment opportunities. Extra funds will increase the amount they invest and lower their management expense ratio.
It might be a good idea in principle. But if they can’t increase earnings through more capital invested, they might have issued new shares for nothing.
Junior Analyst, Money Morning
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