Footwear retailer RCG Corporation Limited (ASX: RCG) surged to a record high after it emerged from a trading halt to undertake a share placement. It's not all doom-and-gloom in retail following Myer Holdings Ltd (ASX: MYR) horror result last week as shares in RCG raced up 36% to 98 cents during lunch time trade.
RCG successfully closed a $25 million placement to professional investors, which will almost guarantee strong demand for its $10 million share sale to its retail investors. The capital raising will help fund the transformative acquisition of New Zealand based Accent Group Limited in a deal that is expected to triple RCG's revenue base.
Management believes that the Accent purchase would have lifted its earnings before interest, tax, depreciation and amortisation (EBITDA) by around 150% to $44.1 million on a pro-forma historical basis for the year ending December 2014. Revenue would have jumped 197% to $276.4 million while earnings per share (EPS) would also have been bolstered by approximately 26% over the same period.
Using this run rate, the forecast 2014-15 price-earnings (P/E) multiple on RCG will fall to around 16-17 times from over 20 times. While that might still look fully-priced to some, the P/E could fall further as the estimates don't take into account potential synergies, such as cost savings and greater scale benefits.
I would urge shareholders to take up their entitlement under the share purchase plan (SPP) as the company is offering new shares at 70 cents a pop. The SPP opens from May 29 and closes on June 26. My colleague Darryl Date-Shappard has written about the deal in more detail and you can read details here.
