Cardno Limited Share Price Down on Capital Raising

Cardno Limited [ASX:CDD] works on humanitarian projects world-wide. These projects span from human rights to creek restorations.

This morning their share price jumped 24.7% to $2.12. Shareholders welcomed the move after a 44% drop yesterday.

cardno limited december

Source: Yahoo finance

CDD had to put their shares in a ‘Trading Halt Session State’ on 25 November. And the share price tumbled as soon as the trading halt was lifted yesterday. What led to the huge drop? And why the bounce today?

Two things.

Rights offer

Late last month CDD issued a rights offer to raise capital. This gave shareholders the chance to buy additional shares at a discounted rate. The company offered shares for $1 to retail shareholders. It raised $28 million. This was in addition to capital from its institutional shareholders.

The offer to shareholders was non-renounceable. Meaning shareholders couldn’t sell their rights to the market if they didn’t wish to buy. Therefore shareholders who didn’t buy saw their existing holdings become significantly diluted.

The heavily discounted shares were the main catalyst for the drop on Wednesday.

Earnings downgrade

CDD announced an earnings update for the first half of FY16 the day after their shares were placed on hold. CDD announced expected earnings between $23 million and $25 million. This was a big drop from previous years’ $63.17 million.

With the rights offer pushing share prices down and earnings downgraded, CDD has a lot they need to work on.

What’s ahead for Cardno’s share price?

CDD is determined to implement their strategic review, which was announced in late October. The first step was capital raising to reduce debt late last month.

However analysts believe the capital raised will still not help their ‘far too high’ debt to equity ratio.

Their second step was to appoint two new US-based executives yesterday. Susan Reisbord and Mark Swatek.

CDD’s CEO Richard Wankmuller commented on the added experience that the new executives will bring, saying: ‘These appointments bring additional breadth and depth of skills to our already highly experienced executive leadership team’.

But a takeover could be on the horizon. The equity firm, Capital Crescent secured a 40% ownership stake last month. Hypothetically, a takeover of CDD could be seen as a positive for shareholders. A cash buy out could help shareholders recoup some of the value lost from the rights offer. But no figure has been offered as of yet.

As for now, things aren’t looking good for CDD.

Härje Ronngard

Junior Analyst, Money Morning


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