Distribution Finance Capital Holdings (LON: DFCH) share price rather wilted this week as the main shareholder announced the sale of its entire stake. The secondary placing in Distribution Finance has been completed and in fact oversubscribed at the offer price. The trade is whether the share price in Distribution Finance powers back to the earlier price or not.
Distribution Finance Capital is a Manchester-based specialist commercial lending and personal savings bank. It was founded as a specialist lender and received a banking licence in Sept 2020.
The share price at Distribution Finance (sometimes referred to as DF Capital) has been rolling along at 57 pence and 58p for months. Until this past week when it slumped to, at one point, the 40 pence or so mark.
The reason was that Arowgras Master Fund Ltd, the company’s main shareholder, announced that it wanted to sell its entire stake. The announcement is here. That 39.38% of the company was on the market is clearly going to influence that share price at DF Capital. That the offering was by a bookbuilding and secondary offer at 40 pence was also going to mean that the price went to that level. Why offer any more than that in the market if you can apply to the bookbuilder at that price?
This morning the announcement is that the secondary offering has been completed. The announcement is here. All of those shares, all of that 39.38% of DF Capital, has been placed at that 40 pence. The overhang of stock on the market has been removed. The share price for Distribution Finance is, as would be expected, volatile. At pixel time it has bounced from 40 to 47 to 40 again.
We might expect that volatility to continue which is a trading opportunity. The bookbuilder announced that the placing had been oversubscribed but then that’s not unusual for a distribution at such a discount (30% or so) to the prevailing market price. Plenty of people would be willing to take the stock in the chance of a quick turn. The bookbuilder also announced that there had been strong support from existing funds and blue-chip investors.
One thought could be that the overhang is now definitely put away into long-term holdings and is entirely removed from the market. That could be true. Another is that some of it has been and that some to many of the new shareholders in Distribution Finance are just looking for that quick turn. In which case any significant strengthening in the share price will call forth selling as people take that profit.
A likely outcome is that there’s both going on. This would mean the price rising to test the desire to sell and cash in by those looking for the turn. The price then declines again until another iteration of the same process. Stability of price is only reached, at whatever level it does, once this has been done enough times to flush out those looking for that quick profit.
A possible outcome is therefore a volatile price for Distribution Finance until the short-term holders are flushed out. How long that will take is the trading opportunity.
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