Should I buy Card Factory shares after the stock price crash?

I recently became bullish on Card Factory (LSE: CARD) shares. But the stock fell almost 10% yesterday. That came after the company released its update on trading and refinancing on Friday.

So would I still buy Card Factory shares after the stock price crash? Yes. And I reckon things still look promising for the firm.

Why did Card Factory shares fall?

It has been a difficult year for the retailer. One of my concerns was whether it would be able to refinance its debt. I covered the stock earlier this month and mentioned that it had successfully managed to negotiate a deal with its current syndicate of commercial lending banks.

Card Factory said that it would be releasing details of the refinance package in the coming weeks. And it released that additional information last week. 

In a nutshell, it appears that “the company intends to use its best efforts to raise net equity proceeds of £70m”. I wasn’t expecting it to ask the market for more money. And I think this has ruffled a few feathers. 

The details

I think it’s worth going through the debt deal with a fine tooth comb. The new refinancing of £225m provides additional liquidity above the original £200m it replaces. It also covers the same term through to 24 September 2023. It’s nice to see that Card Factory has the potential to extend this if required.

As a quick reminder, the company’s net debt as of 16 May was £110m. This has fallen from £132.5m a year ago. At least, the financial position is heading in the right direction.

The new debt refinancing includes a £100m revolving credit facility, a £75m term loan and £50m through coronavirus debt facilities. In fact, these terms “are structured to incentivise an early reduction of overall debt with fees of up to £5m payable if pre-payments are not made in line with specified dates from 30 November 2021 through until 30 July 2022”.

But as I said, what really made Card Factory shares drop is that it plans to raise £70m “to  facilitate these prepayments”. I guess there are now concerns whether the company will be able to raise this amount of money.

Risks

In my last analysis, I did highlight that the market may not like the new terms of the refinancing package. With Card Factory shares falling significantly since Friday, it seems pretty obvious that investors are somewhat wary.

Of course, there’s no guarantee that the company will raise the money in the stock market. And if it doesn’t, the share price is likely to be hit.

It could even prolong the repayment of its debt. Card Factory also faces competition from the likes of Moonpig, which came to market last year.

My view

I’m still bullish on Card Factory shares. I must admit I was surprised that it wants to raise more money through a share placing. But obviously the company needs more help.

What’s encouraging is trading so far. Initial store sales have exceeded expectations. And “to date, increased spend per transaction has primarily offset the reduced retail footfall.” So this means that customers are shopping less but spending more.

I reckon this trend could continue. Especially as the UK lockdown continues to ease further. This should be positive for Card Factory shares.