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Why Analytica Limited shares were slammed 29% today

Shares of Analytica Limited (ASX: ALT) have been smashed by the market today after the company emerged from a trading halt, announcing a material capital raising. The stock plunged 29.4% to a low of 1.2 cents, compared to a 1.1% decline for the benchmark ALL ORDINARIES (Index: ^AXAO) (ASX: XAO).

Analytica is a micro-cap business whose lead product is the PeriCoach System – an e-health treatment system designed to strengthen the pelvic floor muscle for women who suffer Stress Urinary Incontinence. It then gives feedback to the user via a smart phone.

Although the potential for such a system is enormous, there are also a number of challenges including the difficulty of marketing (it’s unlikely to gain traction via word-of-mouth) while smart-phone usage is also far less prevalent amongst older generations.

Capital Raising

On Monday, Analytica was forced to respond to a speeding ticket issued by the ASX relating to a jump in share price on the back of unusually high volumes. The company requested a trading halt and stated that it was in advanced preparations for a capital raising.

Today, the $16 million company announced that it was raising up to $3.7 million by way of a renounceable pro-rata offer (Rights Issue), offering one new share for every two shares held at the record date. The shares will be allocated to shareholders who choose to participate at an issue price of 0.8 cents per share, which represents a 33% discount to today’s price.

The funds will also be used by the company to fund marketing costs in connection with the launch of the PeriCoach System, predominantly in the USA but also in Europe, as well as for general working capital.

Should you buy?

Analytica is by no means a risk-free bet and should only be considered by the more risk-tolerant investment crowd until the company can prove its worth. Until then, investors wanting to gain exposure to the medical device industry could consider looking at alternatives such as ResMed Inc. (CHESS) (ASX: RMD) or Somnomed Limited (ASX:SOM), both of which manufacture devices for the treatment of obstructive sleep apnea.

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Motley Fool contributor Ryan Newman has no position in any stocks mentioned. You can follow Ryan on Twitter @ASXvalueinvest.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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