Why Fitbug Holdings PLC Slumped 30% Today

Shares in Fitbug (LSE: FITB) have fallen by as much as 30% today after the wearable technology company announced a major placing, subscription and new convertible loan note.

The placing has raised £665,000 (before expenses) following 26.6m new ordinary shares being issued in the company at 2.5p each, with a further £350,000 being raised by way of subscription from NW1 investments, which is subscribing for 14m new ordinary shares at 2.5p per share.

Furthermore, a new £650,000 convertible loan note has been agreed with NW1 Investments which is repayable by 31 July 2017, while Fitbug has also agreed a loan restructuring which extends the term on main loans until 31 July 2017. Significantly, this restructuring reduces the future interest rate payable by around 40% and this should mean that Fitbug pays around £300,000 less in interest charges than was previously planned in the current year.

Altogether, the above actions have raised around £1.665m and Fitbug is planning on using the additional capital to support marketing and channel development both in the UK and in the US. The funds will also be used to further enhance its product line-up, with development of Kiqplan Version 2 being a key priority for the company.

In addition to the above changes, Fitbug has also released an update on recent trading. Overall, the company seems to be making encouraging progress, with additional orders being made by Sainsbury’s (which has placed a replenishment order for £265,000 in the last month) and from Towers Watson, with whom Fitbug recently announced a partnership. That order is worth £275,000 and, with Sam’s Club agreeing to a 25 store, eight week trial of Fitbug Orb, Wow and Kiqplan bundle from next month, as well as Argos agreeing to include Fitbug Orb and Kiqplan in their Autumn/Winter catalogue, the company’s sales potential appears to be relatively bright.

Looking further ahead, Fitbug appears ready to take a slice of the growing wearable technology market. It expects total sales across the globe for wearable technology (all brands) to reach 148m per annum in 2018, which indicates that while they may not be a hugely popular product at the present time, there appears to be significant growth potential in the industry in which Fitbug operates. And, with consumers becoming increasingly health conscious, Fitbug’s products could benefit from rising demand for wearable technology and a desire for people to learn more about their exercise and other health factors.

Of course, Fitbug remains a relatively small company which has seen its losses widen during the last four years. And, while today’s additional capital raising (and interest saving) should help it to bolster its marketing campaign and product development, it remains a relatively high risk investment. As a result, and while it clearly has considerable future potential resulting from the forecast growth rate for Smartwatches over the next few years, Fitbug may only be of interest to less risk averse investors who can live with a volatile share price that has reached a high of almost 10p and a low of less than 3p in 2015.

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Peter Stephens owns shares of Sainsbury (J). The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.