Capital increase? What you need to know! TUI, Triumph Gold, Steinhoff

TUI: Salami tactics displease the market

TUI's share price has recently taken a significant hit. The reason is a capital increase with the purpose of repaying the state aid provided during the pandemic. Lufthansa took a similar step months ago. At the time, however, the market interpreted the measure as a signal of strength. Finally, being independent again and taking off. Things look different at TUI at the moment. Perhaps this is because the travel group is not entirely paying off its state aid. Also, the capital increase is already the third step of this kind since 2021. At this point, the transaction has a "whiff of scandal" to it.

If a capital increase does not exceed the 10% mark of the share capital, the Company can waive subscription rights for existing shareholders. These subscription rights ensure that the ownership structure can remain the same after a capital increase or that existing shareholders can at least sell their subscription rights and, in this way, receive compensation for the dilution. TUI has a major Russian investor on board who is now on the EU sanctions list, so a large capital increase with subscription rights was not possible. On the one hand, the current salami tactics mean that a liberating blow for TUI is not forthcoming and that shareholders' stakes are being diluted - after all, new shares are coming onto the market. TUI is heading for below EUR 2.

Triumph Gold: Step by step to success

Capital increases are also an issue for investors in the commodity market. The earlier a company is in its development stage, the more likely it is to rely on such measures. Instead, major investors and strategic partners are rewarded with warrants that allow them to buy additional shares in return for a payment that is usually higher than the current share price. That injects capital into companies' coffers on the commodities market twice over, enabling them to continue on their growth path. However, if the market as a whole falters and prices appear to be cemented, there can also be pressure on the share after capital increases. That is what happened with Triumph Gold in recent months.

The Company was able to provide itself with sufficient capital in 2020 at the peak of the gold bull market - the price of the new shares was CAD 0.20 at that time. A warrant was granted at CAD 0.30 on a three-year view. In the meantime, the share price is more than 50% lower. Many investors from the capital increase are likely to have parted with the value and only hold the warrants. From today's perspective, it seems unlikely that these will run into the money, but investors must consider how quickly things can sometimes move on the capital market. In 2020, the value went from CAD 0.11 to CAD 0.28 within four months. Since Triumph Gold has drilled successfully in recent years and even discovered an entirely new zone of mineralization recently, the stock should be on some investors' minds. If the market turns around like in 2020, the hard work of the past years could be a cornerstone for a positive development of the share. Currently, risk also seems to be priced in because of possible financing rounds. But opportunities can also arise from this. Triumph is a case for the watch list.

Steinhoff: Saved, but at what price?

The example of Steinhoff shows that it is sometimes more complicated to have funds than to need them. The ailing furniture group from South Africa argued with creditors for years. During this phase, there was some restructuring. The result: countless bonds under various conditions. Although the measures ensured the Company's survival years ago, the financial situation still weighs on the stock today. Coupled with legal disputes, this is not a convincing investment story.

When companies need capital, the market takes notice. What weighs on the share price most is uncertainty or capital measures without meaningful investments. TUI's salami tactics, which have the sole purpose of paying off the state, are an example of this. Things are different for emerging mining companies like Triumph Gold. Here, investors know that capital is going into work on a promising property in Canada's Yukon. The Company's steady work over the past few years can pay dividends, especially during challenging market periods. Frugality is not infrequently rewarded.