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Why the InvoCare share price is in a trading halt

The S&P/ASX 200 Index (ASX: XJO) may be pushing higher today, but the InvoCare Limited (ASX: IVC) share price will miss out on the positive investor sentiment.

This is because the funerals company requested a trading halt this morning.

Why is the InvoCare share price in a trading halt?

This morning InvoCare requested a trading halt whilst it undertakes an underwritten institutional placement.

According to the release, InvoCare is raising $150 million through the placement at $10.40 per new share. The net proceeds of the capital raising will initially be used to reduce net debt, increase liquidity and balance sheet flexibility to support the business during the current uncertain environment.

After which, proceeds will be deployed progressively across its Protect & Grow strategy, pre-identified acquisitions, and its digital transformation.

InvoCare will also be launching a non-underwritten share purchase plan (SPP) for eligible shareholders.

Upon completion of the placement (and prior to any proceeds being raised under the SPP), InvoCare’s pro forma leverage ratio will reduce to approximately 1.5x. This is based on its pro forma net debt of $204 million at December 31. It will also mean total pro forma liquidity will increase to approximately $258 million.

Business update.

The company also provided an update on its business performance during the COVID-19 pandemic.

Management advised that case volumes have been relatively unaffected by the COVID-19 restrictions.

It also continues to deliver high quality memorial services for its client families while operating in accordance with the new Government regulations on social distancing. This includes introducing innovative arrangements to deliver its services such as video streaming and deferred memorial services.

Case averages, although impacted by COVID-19, have been reasonably resilient to date and are down 10%.

Dividend update.

Despite this, the company is implementing a package of proactive measures to prudently manage its liquidity position. This includes deferring the payment of the FY 2019 final dividend until the impact and duration of COVID19 are better understood.

It is also negotiating an extension of the debt tranche due to mature in February 2021, reducing operational expenditure, and deferring some elements of capital expenditure.

InvoCare’s Chief Executive Officer, Martin Earp, said: “Our ability to offer a full range of services to our client families is being affected by the current restrictions issued by governments on social distancing in response to the COVID-19 outbreak. We have implemented a series of contingency plans to both reduce the impact of COVID-19 on our business and allow us to continue to meet the needs of our client families during this unprecedented crisis. We are now taking prudent actions to safeguard the success of our growth initiatives.”

“Despite the short-term challenges, we are focused on ensuring that our business is well positioned to deliver sustainable long-term growth. The decisive actions we are taking today will assist the Company in being well placed to weather the current market uncertainties from a position of strength. A fortified balance sheet will also increase our flexibility to capitalise on growth opportunities to enhance shareholders returns,” he concluded.

Also in a trading halt today for the same reason is QBE Insurance Group Ltd (ASX: QBE). The insurance giant is seeking to raise US$825 million from investors.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended InvoCare Limited. 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 Scott Phillips.

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