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DP Poland – placing as ‘insufficient confidence’ of expansion going to plan

By Steve Moore | Tuesday 6 June 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.

Having fallen by approaching 7% to close at 42.625p, a 5:23pm “Proposed Placing” announcement from AIM-listed DP Poland (DPP) - and announcement this morning including that the placing is at 43p per share. Any regulator out there?

The company has raised a gross £5.25 million with Chief Executive, Peter Shaw, having stated “we continue to make strong progress, with 9 store openings to date this year and our 18th consecutive quarter of double digit like-for-like sales growth. In this positive context we wish to underpin our store opening momentum through 2018 and 2019, while encouraging sub-franchisee funded store openings”.

This follows an AGM trading update a month ago in which Shaw emphasised “2017 has started positively” and late March-announced results which included “the company raised approximately £3 million after expenses in October… The net proceeds of the placing are expected to provide the company with the funds required to open an additional 20 stores”.

At that point 4 stores had been opened in 2017, with there an additional “at least” 6 more from here on target by the year-end. However, “at present, there are not sufficient grounds for confidence that enough of the targeted 2018 store openings will be stores opened by sub-franchisees; for this reason the company is seeking to raise £5m net of costs to fund a combination of additional corporate store openings and loans to sub-franchisees, plus additional marketing activity to support sales growth”.

So Shaw argues “strong progress” and “positive context” to “underpin” store opening momentum, but there is actually insufficient confidence of the expansion going to plan – a particular problem given the valuation here. As such, I currently remain bearish.

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