HALT! Here’s why the Catapult Group International Ltd share price is frozen

The Catapult Group International Ltd (ASX: CAT) share price isn’t going anywhere today, as it plans to undertake a capital raising.

CAT share price

CAT share price

Source: Google Finance

The chart above compares the CAT share price to the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO).

What’s happened?

Today, Catapult announced that its shares would enter a trading halt as it plans to undertake a capital raising to institutional investors, with a share purchase plan (SPP) for existing shareholders. The company did not say why or for what purpose it will be using the funds (see below).

However, in addition to the trading halt, Catapult released its quarterly report to the market. From its quarterly report, we can see the company received $10.6 million of cash receipts during the quarter, perhaps disappointing investors who were expecting more.

On the cost side of the line, the company’s cash outflows increased. Unfortunately, with a net outflow (inflows minus outflows) of $5 million during the quarter and only $6.17 million in cash left over, the company is — potentially — in a tough financial position.

What now

As I noted in December, shares in small tech companies like Catapult can swing wildly from one period to the next, and deserve a higher risk weighting. However, I also noted concerns around revenue growth.

In addition to a potential cash burn and squeeze, a key risk to Catapult is its revenue growth. If it cannot keep growing sales rapidly, it risks losing its appeal with investors and, therefore, its premium valuation.

Foolish Takeaway

For me, Catapult is in a high risk bucket. Not only do shareholders have to contend with the uncertainty of the current capital raising but a push into a market (‘prosumer’) that may not provide the growth potential that it was used to in the past.

Having said that, I think Catapult has a great technology and potential — just not as much as the share price implies.

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Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any company mentioned. Owen welcomes and encourages your feedback. You can follow him on Twitter @OwenRask.

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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