I publicly posted some additional thoughts on this given the unsubstantiated comments that were circulating. Please see this link to access the image / calculations referred to in the below:
There’s been quite some debate about the TGR prepayment secured for funding, with some suggesting that the company blundered by not undertaking an equity placing. Putting completely aside whether you think TGE is a good business and will or will not succeed, below is some quick maths showing how even a small equivalent equity raise would have cost shareholders almost 12x more per share than the prepayment (and also ignores the cost of the placing, likely to have been at least the cost of the prepayment). While we can argue about each individual assumption, they don’t change the underlying dynamic that the greater the raise and the greater the eventual value of the business, the quicker this multiple increases.
Based on this alone (ignoring how undervalued #TGR looks even on this basis, excluding the large resource base that this simple calculation excludes), Shishir Poddar and the Tirupati board should be given great credit for taking care of the value of the shares and not just taking the easy option of pumping out dilutive shares. Isn’t this how we want all management teams and boards to behave? You see so many complaints about AIM dilution tanking share prices and when a team comes along and actively does everything it can to avoid dilution, the share price tanks anyway as people theorise why the financing wasn’t the ‘usual’ option…
It is for this reason (the cost of equity issuance) we have been so vocal about the value destruction of BIDS historic raises when potential alternatives were achievable, and why the AVCT team should also be getting credit for waiting until value is attributed for their progress to raise funds (if they even eventually need to) while they have a comfortable funding position.
Dilution is the destroyer of shareholder value. Every management team and board should understand the simple maths and treat their shares with more care. Shareholders should be encouraging them to do so.
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