Pacific Edge shares plunge 25% after $21.3m rights issue

DUNEDIN company Pacific Edge’s securing of $21.3 million in a rights issue to shareholders has seen $17.5 million wiped off its market capitalisation, after its shares plunged 25% to 33c.

The 14year rollercoaster ride of the cancer diagnostic company has included plunging to a record share low of 6.2c in May 2008 and climbing to its highest point, and sharemarket darling status, in February 2014, when its share price hit of $1.74.

Pacific Edge’s shares began to retrace some value yesterday, and were up 3% at 34c at noon.

Craigs Investment Partners broker Peter McIntyre said Pacific Edge had successfully used the market to raise capital when required, albeit with the effect of diluting the value of its shares, which, including the 66.6 million released in the new offer, would stand at 466.3 million shares.

‘‘Shareholders have got to be aware Pacific Edge is higher risk, higher reward.

‘‘Yes, shareholders have watched their share values get diluted and will be disappointed, but the company has worked hard . . . They’ve used the market to raise capital, which is what it’s there for,’’ he said.

When Pacific Edge announced the rights issue on Wednesday its shares stood at 44c, giving the cancer diagnostic company a $149.4 million market capitalisation, but during the following two days they plunged to 33c, or a capitalisation of $131.9 million.

Analysts have noted several times Pacific Edge has had to spend $4 to make $1 in revenue, with its monthly operation costs pushing out to $1.8 million a month so far this year.

Given the rights issue is fully underwritten, Pacific Edge will secure the funding it seeks, which it hopes will see it through to a breakeven point by March 2019.

Mr McIntyre said the full underwriting by First NZ Capital Securities gave shareholders ‘‘certainty’’, in that First NZ had confidence in Pacific Edge and the decision to fully underwrite the offer ‘‘would not have been taken lightly’’.

However, ‘‘some uncertainty’’ remained for investors, in that ‘‘a lot of assumptions’’ were being made concerning Pacific Edge clinching a crucial contract with huge US healthcare insurer Kaiser Permanente, with which it was still negotiating.

Accumulated losses during the past 14 years, plus the latest capital raising, will shortly amount to more than $118 million of shareholder funds.

Cashflows for fullyear 2018 have been estimated by Pacific Edge to be $18 million negative, before hitting $3.5 million cashflow positive in March 2019.

Before the offer announcement, volumes of daily shares traded were exceptionally low, as little as 8300 in one day, but on Wednesday 3.86 million shares valued at $1.43 million changed hands and on Thursday 1.5 million worth $514,000 were traded.

Mr McIntyre said there would be a number of investors who had quit the stock because of value dilution over the years, while this week’s buyers would be eligible to take up the oneinsix offer.

In 201314 Pacific Edge was one of the sharemarket’s darling companies, soaring on the crest of a mini tech boom and hitting a more than $500 million market capitalisation.

Its share price took off after it established a US laboratory and staff, gained crucial regulatory approvals and several patents and announced an impressive raft of contracts with US and other overseas health service providers.

However, by mid2014 the company turned into one of the market’s worst performers, its capitalisation shrinking to $277 million.

❛ Shareholders have got to be aware Pacific Edge is higher risk,

higher reward Craigs Investment Partners

broker Peter McIntyre