Talk that Debenhams has hired Lazards to organise an equity fundraising was followed by speculation that DSGi is considering a rights issue.
The feature both share is that they have been hit with the force of an Ali punch by the credit crunch. But the impact in each case has been quite different. It’s the difference, rather than the surface similarity, that is likely to dictate investor reaction to new shares. In what is likely to amount for a debt-for-equity swap, shareholders will want assurances that value will be protected rather than diluted.
Debenhams, for instance, labours under weighty debt but its retail performance has impressed. Conversely, debt is not the problem for DSGi but evaporating profitability is. So, as Numis analyst Nick Coulter points out, the market may be more sympathetic to Debenhams than to DSGi if new equity is issued. That’s if institutions actually have cash to spare.
Key to the success of any rights issue is how the market is managed. Because talk has been doing the rounds about Debenhams’ likely move for some time, the possibility is factored into the share price. DSGi is probably following a similar course. No fundraising is likely until the retailer has a good business story to tell – the disposal of troubled overseas operations, for example.
More rights issues may be on the agenda. It will be horses for courses and investors will perhaps reluctantly back the financial restructuring of those likely to lead the field.
Kingfisher looks solid
Kingfisher posts its fourth-quarter update on Thursday, almost exactly a year after the appointment of Ian Cheshire as chief executive. Since his promotion Cheshire has acted fast to raise the bar. He has drafted in a well-regarded management team, set higher hurdles for returns on capital and offloaded Italy for a full price.
Kingfisher’s share price says the market has bought into Cheshire’s agenda. The stock has held pretty level year on year, despite the fall of the FTSE 100 and general retailers by more than 30 per cent each.
The fourth quarter isn’t Kingfisher’s most important but all eyes will still be on the group next week for confirmation that its outperformance is justified.
George MacDonald is deputy editor of Retail Week