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7digital – completion of share placing, broker updates

By Steve Moore | Monday 13 March 2017

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Following its 2016 results, digital music and radio services group 7digital (7DIG) has successfully placed 34,769,239 new shares at 6.5p to raise a gross approximately £2.26 million and house broker, finnCap, has updated on the company's manoeuvrings.

The placing is part of a noted £3 million fundraising – a £0.75 million open offer also proposed – following the 2016 results showing swings to net debt, net current and current asset to total liabilities deficit positions (of £0.7 million, £2.3 million and £3.8 million respectively).

The results statement emphasised that “the board remains committed to being profitable at the operating level for the full year in 2017” - which saw me ask what about capex? And, as implied, a free cash outflow is still anticipated - finnCap forecasting -£0.6 million.

The broker has an adjusted pre-tax profit of £1.2 million and free cash flow of +£0.7 million pencilled in for 2018 and a 12p share price target – with, it argues, “significant scope for raising this target in due course given the business’s growth potential and room for operational leverage”.

However, I remain cognisant that, self-admittedly, “the timeline required to close sales contracts and the order value of individual sales continues to vary considerably, which constrain the ability to accurately predict revenue performance” - and such visibility in conjunction with cash generation ability still to be proven sees me currently continue to avoid.

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