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Consumer discretionary

WFC Affirms $30 Million Equity Raise For EROS

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Wells Fargo affirms Eros International at Market Perform with a valuation range of $14 – $16

Soon after Eros International plc (NYSE:EROS) announced that two existing institutional shareholders have raised their holdings in the company, Wells Fargo analyst affirmed the stock at a Market Perform rating. The firm has iterated a valuation range of $14-$16 on Eros stock. As of Thursday’s trading session, Eros stock rose 0.06% to close at $16.24. Eros raised nearly $30 million through the private investment. It aims to primarily use the proceeds to fund Eros Now expansion, which is the company’s Over-the-top content platform.

Wells Fargo commented on the activity saying that the firm is unaware of the rationale behind private placement versus equity issuance or public debt raise. “The press release is light on details, but we can only conclude two likely scenarios for the private placement: 1) the institutional holders wanted a larger stake in EROS, or specifically ErosNow, to participate more in the upside while also collecting a nice fee; or 2) the company needed the capital and didn’t want to approach the debt markets,” said Wells Fargo analyst.

The firm pointed out that Eros management looked confident prior to earnings release when it said that the company is well positioned to self-finance Eros Now investments. However, it could be a combination of the two possible scenarios highlighted above, as Eros is only slightly positive on free cash flow at this point in time, particularly because of withholding content sales for one quarter. Wells Fargo noted that a private capital funding might have made sense for both the company and the shareholders who were interested in a bigger piece of Eros, especially given the limited float of Eros stock.

Eros International is an Indian motion pictures producer and distributor. The company has its headquarters in Mumbai, India. It has a total market cap of $943.12 million and a 52-week range of $5.59-$33.09, while a 179.79 price to earnings ratio.

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