IF YOU have a story that the market likes, raising money can be a snap.
Just look at Ensogo, which just raised $38 million without raising a sweat — not bad for a company with a market capitalisation of about $110 million.
The decision to raise the money was a last-minute one as the company started a Hong Kong roadshow last week and big investors fell in love with the story about growing “flash” internet sales across Hong Kong, Singapore, Malaysia, Thailand, Indonesia and the Philippines.
Before long Ensogo had a flash sale of its own shares and quickly added 12 Asian funds and three new Australian ones to the share register, plus $3.1 million of extra shares to cornerstone Chinese investor Vipshop so it could maintain its 10 per cent stake.
After originally seeking $25 million to $35 million, Ensogo got subscriptions for an amazing $87 million to be scaled back.
The reason for the rush is that Ensogo’s business model is highly scalable, so the cash that has been raised should quickly be turned into new customers who like the idea of buying cheap flash inventory online.
New York-listed Topline is seen as the best flash sale business in the world with a massive Chinese business and a market capitalisation of around $US17 billion, making it an ideal supply partner.
Flash sales of excess inventory are negotiated between brands and Ensogo, then quickly dispatched to customers. Excess stock is sent back to the supplier so Ensogo bears no inventory risk and much lower costs than a traditional retailer.
Surprisingly for an online sales business there are significant barriers to entry with Ensogo having invested heavily in technology and fast turnaround warehousing.
Once a flash player is large, they offer so many customers to a brand that going with a smaller challenger is risky.
At the moment it costs around $12 to acquire each new customer through marketing, so with $29 million of the cash raised to be spent to generate new customers, the current base of 1.1 million should almost triple.
There is plenty of headroom with 471 million people in Ensogo’s target markets, and internet sales growing strongly from less than 1 per cent — potentially rising to China’s rate of 10.5 per cent.
Ensogo grew gross turnover from $75.5 million in 2013 to $152.3 million in 2014 so it is no stranger to fast growth and as the regional leader with an experienced executive team, it should be able to grow again.
A high growth/ high risk speculative buy.
E88 Price at posting:
21.0¢ Sentiment: None Disclosure: Held
