Tech Stock Capital Raises On ASX: To Invest Or Not To Invest?

Capital raises can present both opportunities and challenges for investors, particularly when it comes to ASX-listed internet stocks. In this article, we will examine two recent capital raises by Adveritas (AV1) and Next DC (NXT) and explore how these can impact your decision to invest in them. We will delve into the details of each capital raise, evaluate the companies’ current positions, and offer insights to help inform your investment decisions. 

Adveritas (AV1)

Adveritas, the digital marketing solution provider, recently emerged from a trading halt with news of a successful capital raise. The company secured $6.5 million in Placement from existing long-term high-quality institutional investors. Additionally, they plan to raise an additional $2.5 million through a Share Purchase Plan, allowing eligible shareholders to acquire shares at $0.048 per share. This capital raise aims to bolster Adveritas’ cash reserves by $9 million, bringing the total to $12 million. 

However, we approach Adveritas’ capital raise with caution. Despite the appeal of their unique product offering, several factors raise concerns. The company’s current cash burn rate, averaging around $3-4 million per quarter, coupled with slower-than-expected revenue growth over the past year, creates a challenging environment. Given that Adveritas’ stock is trading at its capital raise price, there may be limited incentives to participate. Therefore, we recently downgraded Adveritas to a HOLD until we observe improved cash flow and a diminished risk of future capital raises within the next 12-18 months. 

Next DC (NXT)

Next DC, the data centre operator, recently announced plans to raise $618 million in capital from shareholders. This funding will be allocated towards building two new data centres in Malaysia and New Zealand and expediting the fit-out at its S3 Sydney centre. 

The capital raise by Next DC involves a fully underwritten 1 for 8 pro-rata accelerated non-renounceable entitlement offer. New shares will be offered at $10.80 each, representing a 7.5% discount on the current share price. The offer opens for retail investors on May 15, 2023, and closes on May 31, 2023. 

Next DC boasts significant tangible assets, with a total value of approximately $3.8 billion, out of which $2.6 billion comprises property, plant, and equipment. With a robust balance sheet and ample liquidity, the company is well positioned to finance further capital expenditure. After the capital raise, Next DC’s gearing ratio will decrease from 33.9% to 10.7%, factoring in the aforementioned asset investment. 

Considering the growth potential of Next DC through its expansion plans and the opportunity for shareholders to participate in the capital raise at a discounted price, we maintain our BUY rating on the stock. However, it is essential to carefully evaluate your investment horizon and risk appetite before making any decisions. 

Final Thoughts 

When assessing ASX internet stock capital raises, it is crucial to thoroughly analyze each company’s current financial position, growth prospects, and market conditions. Adveritas’ recent capital raise prompts a more cautious approach, considering their cash burn rate and slower-than-expected revenue growth. On the other hand, Next DC’s capital raise presents an opportunity for investors, given the company’s strong balance sheet, tangible assets, and expansion plans. 

Disclosure: The BlackBull Research AU Model portfolio holds financial positions in Adveritas Limited (AV1) and Next DC Limited (NXT) as of the time of this article's publication. Readers are advised to conduct their own research and consult with a qualified financial advisor before making any investment decisions. The information provided in this article is for informational purposes only and does not constitute financial advice