TUI shares rout due to capital increase

Capital increase

The German holiday group, TUI unveiled a capital increase to pay back some of the German state bailout it received during the peak of the COVID-19 pandemic and placed 162.3 million new ordinary shares at 262 European cents, which has so far led to a drop in its share price by over 10%.

The London-listed travel group has raised €425 million from the share placing which will be used to reduce its outstanding credit lines from the German state development bank KfW.

This comes on the back of TUI returning about €700 million to the KfW on April 1. Chief executive Fritz Joussen stated: “We are implementing what we announced and committed to – the further repayment of the Corona aid – and doing so as fast as possible. Our goal is to return to normality quickly and focus on new growth. We expect a strong summer of travel and . . . for the current full-year 2022, we expect to return to significantly positive earnings.”

TUI share price drops to early May lows

The issue of more than 162 million new shares, corresponding to up to 10% of the group’s share capital, pushed the TUI share price back to its early May lows, both on the German and UK stock markets.

On the London Stock Exchange (LSE) the TUI share price revisited its 215 pence early May low, a fall through which would likely trigger a sell-off back towards the November low at 190p.

On the way down the late December low at 205p may offer some support, together with the minor psychological 200p mark.

The fact that the TUI share price has given back practically all its May gains and in doing so, taken out the last five daily gains, does not bode well for the bulls as it points to further weakness likely being seen soon. This will remain the case while the mid-March to May highs at 246p to 252p cap the upside.

The share has been trading below its 200-day simple moving average (SMA), currently seen at 256.50p, since July 2021 and has been in a bear market since well before the pandemic hit when it topped out at 1685p in May 2018, four years ago.

Except for a brief period between September to November of 2019, TUI shares have been trading in a clearly defined downtrend but are expected to hold above their March 2022 low at 167p as holiday bookings surge with people wanting to travel abroad again post the Covid-19 pandemic.

Last week the travel company told holidaymakers not to expect last-minute deals amid a surge in bookings with reservations reaching 85% of summer 2019 levels as customers continue to book long-awaited holidays despite the current cost of living crisis.

Europe’s largest holiday company said future bookings were “unabatedly high” as international travel recovered strongly from the coronavirus pandemic and said there would be hardly any last-minute deals because it was facing rising costs.

For a lasting bullish reversal to be seen, a rise and daily chart close above the 200-day SMA at 256.5p would need to ensue in which case the February high at 297p could be back in the pipeline.