Finance6 Feb 2020 15:44
I've built up a modest shareholding here so I definitely want this company to succeed and I'm in for the medium to long term. With the current focus on finance I'd like to give my take on the situation. This is not a ramp or de-ramp just my view based on my research and experience. Please DYOR.
The release of the Hardman RNS is, in my view, quite an unusual move. I believe it's purpose is to get perspective out there in respect of the financing requirement (positioning/market testing if you like) and, not to be underestimated, protection for the board (I'm not going to expand on this).
Firstly, I do not believe that a sale to either to an investor or tradebuyer is currently going to happen for the following reasons. 1. It's too risky. The BOD have indicated that they have a cash runway until end April 2020. If they enter into sale negotiaions now the risk is that any buyer renegotiates or pulls out at the last minute leaving TRX up a creek without the proverbal paddle. 2. They won't unlock the true value in any current sale. I think it's widely accepted that this company has huge potential and I'm sure they will want to realise that.
I understand that they have significant cash draw down facilities (loan or revolving credit) with MidCap in the form of two further tranches of finance subject to certain conditions being met. MidCap will not want to risk their finance unless further equity is issued to balance their risk. Therefore in order to secure the MidCap finance an equity raise is required in my view, This wont be open to the market (no time and high cost and uncertainty) but will be in the form of a placing. I appreciate some others may disagree here. I appreciate an argument that why place shares if financing is available from MidCap? well the answer lies in balancing Midcaps risk and the amount of finance required. TRX need working capital to continue to operate and expand and they need money to get their new production facility up and running. The amount required is simply too much for one lender to take on with the current level of equity/debt ratio. In other words I believe TRX have no choice if they are to unlock MIdCap finance which they have to do. Furthermore any share palcing has to be significant enough to enable the company to get past the point where it's sales are starting to sustain the business. It would be a disaster if they raised equity finance but it wasn't enough and they had to come back to the market. Don't even go there!
So my view is that they will announce a placing of circa 1 Billion 0.5p shares very soon. I estimate the price to be between 0.9p per share and 1.0p per share. This will raise between £9 and £10 million. Coupled with the two tranches from MidCap, one being drawn in 2020 and another in 202,1 this should enable them to fulfill their working capital and capex requirements and bridge the gap to be self sustaining. Looking at the detail of the in depth Hardman report and the future projecte
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