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Why the Amaysim share price was smashed today

The Amaysim Australia Ltd (ASX: AYS) share price is having a day to forget following its return from a trading halt.

In afternoon trade the junior telco company’s shares are down a massive 12% to 83 cents.

Why is the Amaysim share price being hammered?

Earlier this week the company requested a trading halt following the release of its half year results in order to undertake a $50.6 million fully underwritten capital raising.

This morning the company’s shares returned to trade following a successful entitlement offer which raised $35.1 million from institutional investors. These funds were raised at a price of 60 cents per share, which was a 36% discount to the last close price. Amaysim is now aiming to raise a further $15.5 million via a retail entitlement offer at the same price.

The net proceeds from the entitlement offer are to be used to reduce the company’s debt and provide additional balance sheet strength and flexibility to support its investment in new strategic growth initiatives.

These include a significant increase in mobile marketing spend to boost brand awareness and accelerate subscriber growth, complete the development and launch of a new disruptive energy product suite, and drive operational efficiencies.

The increase in its marketing could be bad news for Telstra Corporation Ltd (ASX: TLS) and TPG Telecom Ltd (ASX: TPM) which are already operating in a highly competitive environment.

What now?

Given the significant discount that the new shares are being offered at, I can’t say I’m surprised to see its shares trade notably lower today. I suspect this share price weakness could continue for a bit longer as investors take a quick profit on the new shares.

In light of this and the tough trading conditions being experienced in the telco industry, I would suggest investors stay clear of Amaysim’s shares for the time being despite how cheap they may appear to be.

Instead of telco shares I would be buying one of these growth shares that have been tipped as market beaters.

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