Novonix (ASX:NVX) has angered HotCopper users with its plans to raise capital at 60cps – a steep discount to its 96.5cps share price, currently halted.
The company is launching a placement to sophisticated and institutional investors to raise A$44.4M, and issued a trading halt early Tuesday arvo right before dropping that news on investors.
Before we go into the nitty gritty, let’s zoom out a little. What do the company do?
NOVONIX is a dual ASX and NASDAQ listed battery enhancement technology company.
The company does a few different things in that space, but it all comes down to graphite – synthetic graphite to be exact, which it uses to make products that enhance the performance of lithium-ion batteries.
So, it’s an EV stock, if you squint.
Stock smashed by lithium downturn
And yes, that means there’s a lot of shareholders who remember the early 2020’s, which were a far better time.
While the company’s share price was 97cps early afternoon Tuesday Sydney time, the company was worth $10.68/sh at its peak in November 2021.
During that wave, it was one company perceived to have made the graphite thematic work – often described as the “forgotten battery mineral.”
Worth noting is the company only first moved onto the NASDAQ earlier this year by issuing American Depository Shares (ADS) – and performance there on a YTD basis hasn’t been tantalising.
(Fun fact: Opaque commodity pricing doesn’t help investors understand or track graphite – there is no public spot or futures market, though plenty of firms offer paid analysis.)
But none of that has to do with why HotCopper users were net bearish on Novonix’s Tuesday raising plans.
User reactions
The relevant trading halt announcement thread on Tuesday evidenced a palpable net bearish user community ultimately angered that large investors with more capital to splash around were being offered shares for ‘cheap.’
“An institution placement. Are we short of money? No discount hopefully,” user SeabreezeL wrote.
(This comment came before the company released its second announcement not long after detailing the placement price of 60cps. “Freaking pathetic,” the same user would later write.)
One user questioned the company’s reasoning for raising funds in the first place, with Novonix writing on Tuesday: “Funds raised will allow NOVONIX to order, install and commission key equipment required to achieve commercial production of 3,000tpa at the Riverside facility in 2025.”
“I thought this was already done or at the very least almost completed?,” user 70LKC wrote.
It’s true not all were bearish in the HotCopper thread for Novonix’s trading halt announcement – but sentiment in the following placement announcement thread was worse.
“This raise at 60c is such a punch in the face to holders who have supported this dog a company for years (sic),” user Benwex2 wrote. At least ten users agreed.
At least one user was also concerned the company’s Monday announcement it had inked a Binding Offtake Agreement (BOA) with Volkswagen-tied PowerCo was merely a pump activity ahead of the raise.
“They definitely pumped the hell out of it before they planned the [capital raise],” user Roninvest wrote.
A tale of two traders
The real issue – which has some truth to it – is HotCopper’s retail userbase often sees itself as a ‘second class citizen’ when compared to institutional investors.
That belief, whether fully based in reality or not, wasn’t watered down by Novonix offering its shares to institutional investors at a >30cps discount to what the stock is currently worth (97cps).
The dissatisfaction with this move comes from the fact raising is dilutive and the market tends to sell off a stock to the worth of any raise it issues at a discount.
There are always exceptions, but it’s a golden rule.
And so that means retail users will likely get slogged 30cps – when the stock exits its trading halt, that is – while insto investors get to come in on a lower base.
Skepticism of raise ignores fundamentals
Of course, a lot of people weren’t really talking about the company’s poor performance in the last five years and whether or not holding on was the wisest thing to do.
Nor were they talking about the great uncertainty Trump’s impending administration brings for the American renewables market broadly (especially if you aren’t Tesla).
Not many users either seemed to look at persistent low lithium prices harming the original value proposition of the company, at least as it stood in 2021.
And nor did anyone mention the fact a sort-of-NASDAQ-listed company turned to Australia to raise – at the same time many Australian companies are looking to the U.S. for liquidity.
And, something I like to point out when it comes to the battery metal thematic – it appears not many users were ready to consider whether or not it’s realistic to expect lithium prices to ever reach the levels they did in the early 2020’s again.
NVX last traded at 96.5cps.
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