Why is the Laybuy (ASX:LBY) share price frozen today?

The Laybuy Group Holdings Ltd (ASX: LBY) share price won’t be going anywhere on Tuesday as the company undergoes a capital raising.

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ASX share price trading halt represented by serious woman putting hand up

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The Laybuy Group Holdings Ltd (ASX: LBY) share price won’t be going anywhere on Tuesday.

Laybuy announced a trading halt before market open in relation to a proposed capital raising. The company expects the trading halt to remain in place until Thursday 20 May, or when the announcement regarding the capital raising is released. 

Why is Laybuy raising capital? 

Despite the Laybuy share price plummeting more than 60% since its first day of listing, the company has outlined a number of growth initiatives to leverage its scalable platform and market opportunity. 

From a geographic perspective, this includes accelerating its growth in the United Kingdom market, testing its United States beta for ANZ and UK merchants to access US-based customers and potential M&A opportunities that may arise from industry consolidation.

The company’s fourth-quarter presentation noted that the “US market remains a long-term growth opportunity”. However, the company has yet to set foot in the world’s largest economy besides the testing of its US beta product. 

More recently, the company announced that it had appointed a general manager into the newly created role for the UK and Europe to drive continued growth. 

The UK represents a significant opportunity for value creation for the company, with a 504% surge in gross merchandise value from FY20 to FY21. 

Laybuy’s global growth strategy, new hires and technology investments likely come with a hefty price tag. In the 12 months to 31 March 2021, the company has delivered a net loss of $45 million with a remaining $15 million in cash and cash equivalents. 

The capital raising will likely be used to shore up its balance sheet to further drive key strategic initiatives and growth plans. 

Why the Laybuy share price is down 60% in 9 months

Prior to entering the trading halt, the Laybuy share price had shrivelled to just 68 cents from an initial public offering (IPO) price of $1.41 per share. On its first day of listing on 7 September 2020, the company’s shares even surged as high as $2.30 before closing at $2.05. 

Laybuy chose to list during a period in which the buy now, pay later (BNPL) hype had arguably died down. Smaller BNPL rivals such as Splitit Payments Ltd (ASX: SPT) and Openpay Group Ltd (ASX: OPY) provide good examples of the timing challenges Laybuy has faced. 

The share prices of both competitors peaked in late August/early September, coinciding with when Laybuy made its ASX debut. Both Splitit and Openpay have slumped a similar 60% since. 

So, the Laybuy share price isn’t alone in its selloff, with both local and BNPL behemoths such as Afterpay Ltd (ASX: APT) all facing heavy selling across the board. 

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Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of AFTERPAY T FPO. The Motley Fool Australia has no position in any of the stocks mentioned. 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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