Shares in retirement-planning firm Just Group (JUST) tumble 14% to 84p after it scraps the dividend and announces plans to raise close to £400m in debt and new shares to shore up its balance sheet.
Even though results for last year showed good progress, with strong sales growth and higher margins on new business, the firm has decided to cancel both the interim and the full year dividend and instead raise cash.
The capital increase is made up of at least £300m of new debt, which under certain circumstances could be converted into new shares, and 94m new shares which would bring in £80m at the current price.
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Although the press release refers to the ‘placing of 9.99% of existing share capital’, closer reading reveals that these are actually new ordinary shares being issued which are equivalent to 9.99% of the existing share capital.
By keeping the capital increase to less than 10%, Just Group avoids having to call a shareholder meeting to ask for approval.
The reason for the cash raise is to increase its solvency in response to the Prudential Regulatory Authority’s (PRA) new policies on the treatment of equity release mortgages being held to back annuity liabilities.
Just Group is a big player in equity-release products and under the PRA’s new rules it needs more capital to cover risks in the mortgage market.
It also needs the funds if it wants to make acquisitions and keep its coveted A+ financial strength rating from credit ratings agency Fitch.
While analysts had anticipated a debt raise the issue of new shares comes as a surprise with Paul De’Ath at Shore Capital (SGR:AIM) describing today’s news as ‘the company resetting a number of factors’ with the result that ‘the capital break-even point has been pushed back by a number of years’.
Longer-term De’Ath sees the capital raise as putting Just Group ‘in a more secure place regarding capital’ and sees the shares recovering once the placing is completed.
