In this turbulent COVID-19 world, "capital raisings" are no longer seen to be a dirty word!
In fact, ASX shares that are going cap in hand to shareholders begging for extra cash may prove to be the new fertile hunting ground for value buys on the S&P/ASX 200 Index (Index:^AXJO).
It sounds a little crazy as stocks that are looking to sell new shares at a discount will normally be under pressure. But we aren't living in normal times anymore.
Beggars are the new kings
The National Australia Bank Ltd. (ASX: NAB) share price is but only one example of a stock that has rallied hard after pleading with investors for more capital.
Shares in the big bank surged around 11% since it announced a $3.5 billion placement and share purchase plan (SPP) priced at $14.15 a pop.
NAB is currently trading at $17.01 and is unlikely to trade at or below the offer price. This gives shareholders a relatively easy way to make a profit and the bank isn't unique either.
As I wrote earlier this week, three quarters of ASX companies doing a cap raise are trading above their offer price.
Upgrades on a cap raise?
Furthermore, brokers seem to be upgrading a number of ASX shares on the back of a new share offer.
Engineering and property group Lendlease Group (ASX: LLC) is the latest to get a recommendation upgrade. UBS lifted its rating on the stock to "buy" from "neutral" as it believes the company's $1.15 billion raising will give management much needed flexibility in these uncertain times.
Further, the cash injection will allow Lendlease to take a larger share in the development pipeline and make opportunistic acquisitions.
"We upgrade to Buy given an improved funding position (gearing 10-15% at 30-June), confidence around a capital solution at Barangaroo and a risk/return profile that is skewed to the upside at current pricing," said UBS which put a 12-month price target of $15.50 on Lendlease.
Cash to grow
Another stock that just got upgraded is Credit Corp Group Limited (ASX: CCP). Morgans changed its recommendation on the debt collector to "add" from "hold" following its $120 million placement to institutional investors.
Credit Corp is also looking to raise up to $30 million from existing shareholders via a SPP, and the broker believes the company will have no net debt by December this year unless it makes an acquisition.
While you might think the coronavirus-triggered global recession would herald boom times for a debt collector, Credit Corp's business is impacted by the fallout.
But the short-term pain will translate to gains over the next two years, according to Morgans.
"Short-term earnings risks are still evident, however CCP is in a strong position to benefit from capital deployment opportunities and potential industry consolidation over the next two years," said the broker.
Morgan's price target on Credit Corp is $18.50 a share.
