The latest Investing Matters Podcast episode featuring Jeremy Skillington, CEO of Poolbeg Pharma has just been released. Listen here.
Trading down 3% on Frankfurt exchange
https://www.marketwatch.com/investing/stock/tui1?countrycode=de&iso=xfra
Around £3.40 which is there about a where we are trading today.
Given the rump is confirmed at this level, would it be fair to conclude we are not going to see significant downward pressure tomorrow when shares are admitted?
(The running debate re is dilution effective ex rights date or date of admission)
I’m afraid I have a different rational, and that it’s news driven, relating to the negative outlook provided by the U.K. government yesterday (Priti Patel / restrictions with us for a while yet / too early for holidays)
Those shares prices you quote below, are the pre rights prices adjusted for the dilution? (Some reference data sources have restated and show pre rights issue much lower than £2)
Am I right in thinking there is a difference in the RR vs TUI RI in that the tui is underwritten whereas RR wasn’t? RR did a large rump placement, around 6% of the RI wasn’t taken up.
Genuine question - if you are correct, and if it is that much of a certainty why isn’t the market selling today?
If people aren’t willing to lend their stock to allow shorting because they are confident the price would drop, it would be logical for them to sell. (Either the shares they hold or the rights given both can be sold today). Thanks
Apologies I do not have a reference to direct you to - can no longer find.
There is also another dimension which hasn’t been discussed (or at least not recently) on this board. There are other pharmaceutical companies delivering vaccines - Johnson & Johnson is one such company that currently does not have approval, but there are several.
Governments from wealthy nations have bought large stocks of vaccine, enough to vaccinate large portions of the population this year. Other manufacturers will be coming into a crowded market, with the government being less interested in further large purchases. If approved, and the government doesn’t want to buy, these additional supplies are likely to go towards private medical companies. Assuming cost is not exorbitant, and they have trained individuals to deliver the vaccines, you would assume a further acceleration of vaccine deployment (specifically to people more likely to have disposable cash).
There have been stories circulating of HNWI flying to Dubai for 2 weeks to get the vaccine privately, the above scenarios lowers the price point
Re RR (a 10 for 3 RI to raise c£2bn), not all rights were taken up or sold to a buyer, leaving a 6% rump placement at discount to market to get the shares away.
There is a potential for a rump placement here, but I’m not sure that is the same as dilution.
From Reuters;
The overwhelming majority of shareholders backed the equity raise, but the results showed there were some dissenters to the issue from what is one of Britain’s best known industrial names, with 6% of the new shares issued not initially taken up.
Shares in the company traded down 8% at 90 pence at 1240 GMT. In the rump placing, the new shares were sold at a price of 90 pence per share, the company said.
Apologies this is a long post. Below is as I see it. Others might have different views.
If you can sell your rights for a given price, someone else is willing to buy them.
If you are willing and able to buy either a share or a right you would only be willing to pay the cheapest option of the two, as at the end you get the same asset; one share.
(Rights value + exercise price = share price)
As soon as the rights became available to trade, market participants could start to trade them. Market participants would have the option of buying one share or buying one right, knowing they will have to pay the exercise price and get one share at a later date. The two options are equivalent, and whilst the rights have not yet been converted to shares, both the shares and the rights are trading. The number of shares haven’t yet increased but the same number of rights are trading.
The negative impact on the share price arising from the dilution happened when the shares went ex rights. The day before there were x number of shares. The day after those shares get rights attached which convert to y shares in the future. As such there is now x shares and y rights (equivalent to a new share) trading. The price dilution happened at this point . Some brokers haven’t yet updated the share price history for the action, and you can see the drop 8th / 9th jan when the shares went ex rights.
If you google the share price, it seems google has restated the share price history as the share price in late December traded up at around 5.00.
Above is a bit similar to when a share goes ex dividend and when a dividend is paid. In theory the sp drops the day the shares goes ex div even though that div doesn’t get paid until later
Household Savings
https://www.google.co.uk/amp/s/www.thisismoney.co.uk/money/saving/article-9122813/amp/Britain-predicted-saving-record-sums-lockdown.html
TUI Demand
https://www.google.co.uk/amp/s/www.bbc.co.uk/news/amp/business-55654127
There is debt for sure and that will have an impact.
Vaccine roll out pace and ability to travel could also prove to be a concern, but the U.K. is broadly there or there about a on planned roll out, with EU countries roll out improving too.
The positives are around pent up demand, combined with the K shape recovery. I recall seeing research a couple of weeks ago suggesting that households are saving £500/month extra at the moment (on average). Supply of hotels can be considered fixed over a a year or so. Demand for hotels would only need to increase modestly to support a price rises with little to no incremental costs (think school holidays, but across a whole season). The BBC news story yesterday re increase demand suggests this could play out.
There has been significant monetary and fiscal stimulus pumped into most western economies, making comparison pre / post covid on a simple like for like difficult.
I’m leaning towards the upside, but fully recognise that an adverse mutation rendering the vaccine less effective would be brutal for most stocks, including TUI
So if I read this right;
Today’s RNS is to confirm Goldman are now holding 5%+ of the equity base, with no previous disclosure required? If so - it would seem they see TUI as a buy at these levels. It would explain those £2m clips that have printed over the last week or so.
I wouldn’t expect them to be caught out by timings of rights issues etc (and so are probably not expecting price to drop on the 29th, as other chains have discussed at length)
I have sold my rights. Someone else has bought them and therefore will intend to take the shares, or sell them to someone who will. Why would anyone by my rights at current levels, if they could wait a couple of weeks and know with certainty they would be cheaper?
The dilution is priced in and was reflected in the drop at the back end of last week
That’s not to say news flow and trading activities won’t have an impact in the share price on the 29th
Some brokers may allow you to sell part of your rights to finance the purchase of the other rights. This doesn’t introduce any additional cash to the tax wrapper, so you won’t be impacted by the £20k/annum limit. Check with your broker.
I don’t know what you mean by merge
However - the market should price the rights that you could sell as (current share price - cost to buy your rights). There are slight frictions as others have called out on the board such as FX spreads charges by brokers, but if you ignore those what you are describing is arbitrage - a risk free profit. If you could sell one type of share and buy shares via the rights offer for a cheaper price, someone with a much bigger balance than you would have already done that!
Buying your rights or selling your rights should come down to do you want this much risk exposure to the stock or do you want to reduce it