Infrastrata (INFA) – The raise wasn’t ideal but the opportunity is!

Infrastrata (INFA) – The raise wasn’t ideal but the opportunity is!

Having literally just covered INFA for Cube. I was surprised that the company decided to raise £1.5 million via a discounted placing at what I consider to be non-ideal timing (latest share price 1.275p, market cap £15 million).

Why I viewed the timing of the raise as far from ideal
  1. The company chose to raise when the share price was significantly lower than it had been in the previous couple of weeks:

(Source: IG)

  1. All of the warrants at 0.6 pence had just been exercised as per the company’s RNS on 21st January.
  2. The company had just received a significant amount of cash from the warrants exercised. From the aforementioned RNS:
    1. 20,833,335 * 0.6 pence = £125,000.
    2. 14,998,665 * 0.48 pence = £71,993.
    3. Total = £196,993.
    4. Other warrants exercised earlier in the month also provided the company with cash.
  3. Significant news was expected over the next couple of months and the company’s share price could have moved up in anticipation of this.
  4. If you looked at the technical indicators a couple of days before the raise, Infrastrata was oversold at 1.3p and there was a decent amount of buying at this level. So it looked as if the share price could recover (this was prior to the 29th Feb RNS – more on that below!).

The INFA team haven’t put a foot wrong when it comes to project execution, so perhaps the brokers could’ve done a better job for Infrastrata? Under the current AIM system there’s a clear conflict of interest for any broker. Yes, the broker provides advice to the company, but they also want to ensure their investing clients make money even if that’s at the expense of existing shareholders in a company. In other words, if I was a broker, I’d much prefer to place INFA shares out to my clients at 1.2 pence rather than 1.5 pence, because then they’re more likely to make money!

More positively – not another keep the lights on placing

The fundraise RNS provided lots of detail as to why the fundraise was done and what the money will be used for with CEO John Wood mentioning “the reduction of project risk”, and saying “this placing is in the best interests of our long-term goals”. 

The use of funds was clearly laid out in the RNS as being for land purchase (£400k), engineering design works for cost savings (£350k), pre-construction commencement documentation and further land surveys (£320k) and onsite enabling works (£300k).

Additionally, unlike previous fundraising, this fundraise contained no warrants, thereby minimising future dilution.

Potential newsflow in the near term (from the fundraise RNS)

Equity partner announced within six weeks – an “additional potential equity provider” has agreed to “undertake detailed due diligence work”, expected to take around six weeks. Infrastrata delayed selecting an equity partner to evaluate this offer, so I suspect that the potential terms of this equity are an improvement and that should this partner wish to proceed, it will get the go-ahead.

Project costs taken into consideration – As part of the equity negotiations, “recovering costs invested to date is one key commercial element of the deal and these additional costs will be included within that calculation.” – This suggests Infrastrata could retain a larger part of the project equity.

Offtake agreement(s)“Negotiations on the offtake agreement are also progressing well and are on track to link in with the Project equity provider in due course”. Off-take agreements de-risk the project and will facilitate equity/debt financing.

Update 29/01/2019 – EU funding

On Tuesday, the company announced that it has been unsuccessful in its request for financial assistance under the second CEF Energy Call for proposals 2018″.

The shares immediately dropped over 20% to below 1p. I view this as hilarious, given that none of the company’s projections take into account additional EU funding.

Furthermore:

“InfraStrata has also been informed that a further invitation for applications for the next round of funding will be received by the Company around March 2019 and the Company plans to resubmit its enhanced application at this time”.

Given that the company could still win EU funding with an enhanced application, I viewed the drop as an opportunity.

With Islandmagee’s Final Investment Decision being due at the end of H1, I view Infrastrata as a buy for the short, medium and long term.

 

At the time of publication, the author holds a long position in INFA.

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