Purple Group shareholders lose R450 million

Purple Group shareholders who held on to their shares after the rights issue was announced and exercised their rights made a significant loss.

Purple Group launched its rights offer last month, with shareholders having the option to buy new shares at a subscription price of 81 cents per ordinary share.

The company issued new shares at a ratio of just over 10.2 rights offer shares for every 100 Purple Group ordinary shares.

When the company first announced its intention to undergo a rights offer, the share price traded at R1.29 per share.

The rights offer was concluded recently, and it was time to take stock of what it meant for Purple Group shareholders.

At the time of writing, the Purple Group share price traded at R0.90 per share. It means that shareholders who exercised their rights made a significant loss.

Under neutral conditions, the Purple Group market cap should have increased by an equivalent amount to the capital raised by the rights offer – R105 million.

On the date Purple Group announced the rights offer, the company had a market cap of R1.64 billion.

With the additional R105 million capital investors put into the company, investors would expect the market cap to increase to around R1.74 billion.

However, after the rights offer was announced it was successfully concluded, Purple Group’s market cap fell to R1.29 billion. Simply put, it resulted in a R450 million value loss.

The R450 million loss in market cap is more than four times the capital Purple Group raised from the rights offer.

Investors who exercised their rights are now in a worse position than if they sold their shares when the rights offer was announced.

Investors would be hopeful that the raised capital will generate significant returns as the purple group share price still trades at more than 80 times earnings.

Purple Group CEO Charles Savage previously said they are confident they will return more than 1,000% on their capital raise.

He cited the R100 million capital raise six years ago to fund EasyEquities when Purple Group’s market cap was R200 million.

“We raised R100 million, and we 10xed [providing a return to shareholders of 10 times, or 1,000%],” Savage said.

He said that when the capital was raised, EasyEquities was tiny, with around 50,000 customers and only Satrix as a partner. “Despite all of that, we could still 10x it.”

Savage is even more bullish on the latest capital raise to further drive the Easy Group’s growth. “What we will do is to more than 10x it,” he said.

Purple Group shareholders who backed the company by exercising their rights are now relying on Savage and his team to deliver on their promise to create shareholder value.