DIRTT Environmental’s (TSX:DRT) recent secondary is a positive because it reduces perceived overhang in its market and curbs its debt levels, says Paradigm Capital analyst Spencer Churchill.
On June 17th, DIRTT announced that it had completed a secondary financing that saw numerous shareholders sell more than seven-million shares at $2.60 a share to a syndicate of underwriters led by Raymond James. Although the company didn’t receive any of the proceeds, the offering did result in the conversion of more than $5-million dollars in principal and accrued interest outstanding on the company’s 14% senior subordinated convertible notes, which were held by some of the selling shareholders.
Churchill says the secondary was a tidy positive for DIRTT, and he expects the same in November, when another 17.7-million shares will be released from lock up. But more important news, says the Paradigm analyst, came in the form of the company’s largest-ever contract, which was announced June 5th.
Noting that the average size of DIRTT’s sales is about $75,000, Churchill says the $25-million plus that represents the company’s portion of the sale, which was made to a Fortune 500 oil and gas company, is a “material win”. He says the new contract reinforces his “…view that it is at the tipping point of market acceptance, with revenue growth set to accelerate, driving earnings leverage.”
In a research update to clients this morning, Churchill reiterated his “Buy” rating and $4.50 one-year target on DIRTT Environmental, implying a 41% return at the time of publication.