The 5G Networks Ltd (ASX: 5GN) share price is storming higher today after the company completed an oversubscribed institutional placement.
5G Networks is a licensed communications carrier that operates throughout Australia. It currently owns and operates its own high-speed data network with points of presence in all of the major Australian capital cities.
The company also offers cloud solutions through its data centre and cloud capabilities, along with managed services to optimise customers’ IT and network environment.
What did 5G Networks announce?
5G Network shares have resumed trading on the ASX today after being halted while the company undertook a capital raising.
This morning, 5G Networks announced it has successfully completed the institutional component of the raising, comprising $18.2 million of funds. The institutional placement was completed at an offer price of $1.23 per share, representing an 8.9% discount to the company’s last closing price of $1.35.
The 5G Network share price has been on a tear recently and at yesterday’s close, shares were sitting on a year-to-date gain of 80%.
Notably, 5G Networks stated that the placement was strongly oversubscribed, with demand derived from a range of new and existing institutional investors.
The company will now have a pro forma net cash position of $16.4 million as at 31 March 2020. Proceeds from the capital raising will be used to accelerate organic growth initiatives and fund acquisition opportunities.
These growth initiatives include the expansion of its fibre network in Sydney and Melbourne, and new builds in Brisbane and Adelaide focused on CBD demand. Additionally, the company will continue to invest in increasing utilisation and cross-sell opportunities.
On the whole, 5G Networks believes it is well-positioned for continued growth in the COVID-19 environment. This is due to the essential technology and network services it offers, as well as the increased demand for digital infrastructure due to mass remote-based working.
FY20 guidance
In its capital raising investor presentation yesterday, 5G Networks also provided a trading and guidance update. Accordingly, FY20 earnings before interest, tax, depreciation and amortisation (EBITDA) is expected to be in the range of $6 million to $6.3 million at an EBITDA margin greater than 12%. This is above the previously guided EBITDA range of 8% to 12%.
The company attributed the anticipated improvement in EBITDA margin to the conversion of customers to high-quality, higher-margin recurring revenue services; cost synergy realisation; and an increase in operating leverage.
However, FY20 revenue is expected to land between $50 million and $52 million. This is down from the guidance range of $55 million to $65 million provided in mid-February. 5G Networks attributed this to a shift from one-off hardware sales to recurring revenue services.
At the time of writing, the 5G Networks share price has surged by 7.04% to $1.445 after rallying by as much as 12.59% in early trade.
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Motley Fool contributor Cathryn Goh has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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