Today’s Primary Bid Offer is more big league than usual – Inland Homes, I am almost tempted
By Tom Winnifrith | Thursday 30 April 2020
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.
Folks often carp that Primary Bid offers are at the scuzzier end of the AIM casino. That charge cannot be levelled today. Inland Homes (INL) is a proper company and this is a serious, largely institutional, fund raise.
Inland develops brownfield sites either flipping them on to bigger house builders having added value by securing planning consent or building out themselves. As you can imagine, the Government’s response to Covid 19 has hit the business hard. It has furloughed some staff, there have been a raft of pay cuts, a dividend scrapped and now a fund raise.
I would note that while a final dividend relating to 2019 has been scrapped, director bonuses relating to 2019 have only been deferred. Given how the company is also taking taxpayer cash that seems wrong to me.
Having said that, directors have taken a 50% pay cut and are backing today’s not underwritten book build and placing heavily. The company says that its net debt is £150.3 million and it has cash of £17.8 million and undrawn facilities of £7.5 million so raising additional equity, up to £9.9 million, makes sense.
Instinctively I worry that this company is going to have to write down the value of its land bank big time in the Autumn as house prices fall and I am also concerned that revenues will recover only slowly. To me the borrowing level for a company with an uncertain asset backing and very uncertain earnings visibility looks too high.
Having said all of that, the market seems to disagree right now, it is looking forward to a year when hard assets rise in value as inflation is pumped into the system Hence the shares are 50.5p as Panmure Gordon builds the book and the offer price is 47.5p. Assuming dividends are resumed in 2021 which they should be, the potential yield will be in excess of 6%. In the current, optimistic climate, this issue could be worth a small investment. The deadline to apply is 5PM but if demand is high, as it may be, that could well be brought forward.