A new financing gives the company some breathing room, but Canaccord Genuity analyst Robert Young says Spectra7 Microsystems (TSX:SEV) is still not to be touched.
On Tuesday, Spectra7 announced it had secured a $3.1-million private placement by selling nearly 29-million shares at 10.5 cents. The analyst put some context to the actions.
“The move should come as no surprise as management has stated that they were actively exploring financing options to resolve liquidity issues,” Young explains. “The dilutive funding consists of 28.7M units at a price of C$0.105 per unit for gross proceeds of up to C$3.0M. No closing date was provided and the company warns that the funding may occur in more than one tranche. Each unit will include one common share and one half warrant. A positive indication of confidence in the business is the participation of insiders who will contribute approximately C$748,000. This financing will provide the company with breathing room in the short term as the company looks to penetrate the company’s core growth market of data centers and VR/MR interconnects.”
But the analyst, who Tuesday maintained his “Sell” rating on the stock, says this development does not solve the company’s problems. And due to increased dilution he has cut his price target on SEV from $0.15 to $0.10, implying a return of negative 23.1 per cent at the time of publication.
Young thinks Spectra7 will generate EBITDA of negative $8.1-million on revenue of $10.7-million in fiscal 2018. He expects those numbers will improve to EBITDA of negative $4.7-million on a topline of $21.0-million the following year.
“We expect the company is aggressively managing its working capital,” the analyst adds. “Management has previously suggested strategic alternatives exist which would not affect the cap structure, including strategic partnerships or the sale of non-core assets including patents. The C$3.0M financing announced this morning will sustain the company’s operations in the near term as the company continues to focus on cutting costs and managing its balance sheet aggressively.”