Difficulty securing investor support despite a string of strong results is behind a plan by Redcape Hotel Group to delist from the ASX after just three years of trading as a public company.
The proposal, which was announced at the same time as its latest financial results, will see Redcape launch a $247 million buyback, with shareholders able to opt to sell their stake through an off-market buyback at $1.15 per share, or remain invested in Redcape as an open-ended unlisted fund.
The plan was devised in response to what CEO Dan Brady describes as an “irrational” share price – which has remained stubbornly static since its initial listing price of $1.04 per share in November 2018 – along with difficulty in obtaining broader institution and retail investor support.
The company last week reported a full-year net profit of $28m, up 153 per cent on the previous year, and Brady told Australian Hotelier that he was frustrated that the share price did not reflect the value of Redcape’s asset portfolio or investor demand for the sector.
“Support from investors is very high, but in an unlisted sense,” he said, and it was this “irrationality” that led Redcape to “review if the ASX was right the market for us”.
Part of the problem, Brady said, was potential reluctance in the ASX investment community with regards to particular types of stocks. The end result, he said, was that the ASX listing was limiting the ability of the company to raise capital for future growth.
Brady said the prime driver of the ASX listing had been to provide Redcape with enhanced access to capital markets to help fund growth initiatives, to secure more diverse capital, and to reward venue managers with share allocations.
He believes an open-ended unlisted fund will provide a better environment for growth through acquisition at a valuation that is closer to parity with its pub assets, while at the same time providing shareholders with an attractive yield.
“We can achieve all of this in an open-ended unlisted fund,” Brady says. “Our ability to raise capital in this unlisted fund will be much higher.”
The delisting proposal will be put to the vote at an online meeting of shareholders on September 10.