UK investors are prepared to back more emergency share sales after companies raised £1.5bn over the past month to withstand the economic pain unleashed by the coronavirus crisis.
Stationery and books retailer WHSmith, fashion group Asos and recruiter Hays are among the more than 25 UK companies to have raised new equity as the lockdown takes its toll on businesses.
The appetite to support the cash calls has been increased by companies selling new shares at a discount, while an easing in guidance over how much businesses can raise without the approval of existing shareholders has made it easier for boards to act swiftly.
Germany, China and Australia are among the countries to have eased similar restrictions since the crisis erupted.
Ken Wotton of Gresham House Asset Management, which recently stumped up new funds for leisure groups City Pub, Ten Entertainment and Everyman Cinemas, said he saw “great opportunities to back fundamentally good businesses for the long term at attractive prices”.
“We are broadly supportive of companies acting quickly and decisively to shore up balance sheets […] particularly while capital is still available.”
Almost 30 companies have raised at least £5m each since the middle of March, according to broker Peel Hunt. Online fashion retailer Asos forced investors to dig deepest with a £247m cash call last week.
But with an extension of the lockdown expected to inflict more damage on the economy, investors say they are focused even more sharply on the quality of the business when deciding which share sales to participate in.
A portfolio manager at one large UK asset manager said its investment teams had “drawn up a list of companies which might well look to shore up balance sheets through an equity raise, to decide which ones they would support or not”.
“Our message to companies is go early and in size, rather than soldiering on hoping that trading picks up quickly in a V-shaped recovery.”
In March, Britain’s dominant services sector suffered its sharpest contraction since records began, and many analysts now expect the economy to contract more than 10 per cent in the second quarter.
Shareholders’ willingness to hand companies more cash has been bolstered because funds are sitting on large cash piles amassed thanks to years of bumper dividends and the proceeds from share buybacks.
“At the moment there is enough capital for investors to be supportive,” said Gervais Williams, head of equities at Premier Miton. “But that will run out, especially now that there are fewer dividends coming through.”
More than £52bn in company dividends are at risk in the UK this year because of the coronavirus outbreak, according to research published last week from the Link Group.
However Richard Buxton, head of UK equities at Merian Global Investors, said that asset managers now had the chance to step in after being overlooked in recent years when companies turned to the private equity industry rather than the public markets for funding.
“For some time there has been a view that the equity market is no longer a place where companies raise capital but just a dumping ground for second-hand goods from private equity firms,” said Mr Buxton, who backed a share sale last month by SSP, the travel food retailer. “So it is nice to see that actually equity investors are there to provide capital to businesses.”
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