Vision completes capital raising

Vision Eye Institute has announced the completion of a $10m institutional capital raising at 60 cents per share.

The proceeds will 'fund appropriate acquisition opportunities identified by the VEI Board. These include day surgeries with ophthalmic specialists and other disciplines, medical centres and other opportunities in the day surgery and medical precinct space.'

We think the time is right for expansion given the company's balance sheet is now under control – net debt has fallen from close to $100m to $27m over the past five years. It's also necessary as the company's network of ophthalmologists continue to push for a larger slice of profits at each contract renewal (see Vision Eye Institute: Result 2014 from 27 Aug 14 (Hold – $0.72)).

However, we're cautious of management's desire to branch into related areas of healthcare where it has little experience – we'd prefer it focus on growth and improvement of the existing eye clinics. We were also discouraged by the decision to raise capital exclusively via institutions, rather than via a pro rata entitlement issue which doesn't favour one class of shareholder over another (see ASX BookBuild offers a fair share).

Nonetheless, the share price is little changed since Small stocks update - Part 2 from 23 Sep 14 (Hold – $0.66) and, with a price-earnings ratio of just 9, is far from expensive. The stock is close to an upgrade so, as the share price falls, you may wish to add to your position. But for now we're sticking with HOLD, for up to 3% of your portfolio.