Shares in premium bars operator Revolution Bars (RBG:AIM) crashed 30% to 23.3p after its shock £21 million cash call at a deeply discounted price.

The 20p issue price represents an approximate 41.2% discount to the prior closing price and will result in existing shareholders being diluted by a whopping 84%.

Retail shareholders are being offered to participate via a restricted £1 million Open Offer in order to comply with what seems like antiquated prospectus regulations which limit such offers to €8 million a year.

The company was restricted because of the £6 million open offer made in June 2020.

RETAIL ANGER

There was criticism that institutional shareholders who were made insiders while being consulted by the company over the proposed share placing were at an advantage over retail investors.

There’s a valid argument for suspending shares while management hold discussions with key shareholders over a proposed placing, especially if the transaction takes place at a deeply discounted share price, as is the case here.

Any retail shareholders who purchased shares recently around 33p will feel let down by the company.

RATIONALE

The company said the rationale for the fund raise was to reduce debts, accelerate the refurbishment programme and fund new site acquisitions.

The board believes that a ‘significant increase’ in household savings will provide the opportunity for strong returns from estate refurbishment while favourable market conditions support expansion.

Co-book builder, Finncap commented, ‘the ready availability of great sites at lower rents with lower capex requirements is, perhaps, a once in a decade opportunity to exploit, with lasting benefits for companies with the cash and wherewithal to exploit it.

‘Management is keen to acquire sites in this window of opportunity and sensible new site acquisitions could pay benefits lasting several decades.’

Finncap estimates that successfully utilising the raised funds could result in an additional £3.4 million of EBITDA (earnings before interest, taxes, depreciation, and amortisation).

However, the dilution impact from a higher share count reduces its 2023 earnings per share estimates by 47% to 0.9p.

READ MORE ABOUT REVOLUTION BARS HERE

Find out how to deal online from £1.50 in a SIPP, ISA or Dealing account. AJBell logo

Issue Date: 26 May 2021