Pawnbroker Albemarle & Bond (ABM:AIM) falls 43.5% to 70.6p on news that a deterioration in trading, as predicted by Shares, means it is now at risk of breaching its banking covenants. It has also announced plans for an emergency rights issue.
The gold price has taken a hammering as the US gets ready to scale back its huge quantitative easing (QE) programme. This is bad for Albemarle which announces that earnings this year could be depressed to such a level as to test the £69 million cap’s earnings-based covenants.
Management from next month will be led by a new CEO Chris Gillespie. There's a one-month extension for today’s covenant test until 30 October. It is expected to confirm details in the next 48 hours of a £35 million rights issue following discussions with major shareholder EZCORP.
The prospect of a highly-dilutive fundraising at 50p is what has driven the share price down in tandem with the fears about the firm’s debt pile. Investors will be able to protect themselves against the dilution by participating in the raising, should they wish to remain committed to the business.
Crucially investors who might be considering pumping more money into the stock might like to take a view on the future direction of the Federal Reserve’s $85 billion a month open-ended QE drive. The gold price has fallen 24% in the past year as concerns have mounted about plans to taper this asset buying.
The Fed decided not to taper at last month’s (17-18 Sept) meeting of the Federal Open Market Committee (FOMC), but many believe that imminent tapering is inevitable, a view which would seem to be supported by the fact that Treasury yields have not retreated significantly since the FOMC QE taper ‘no-go’ vote.