Interactive Investor

Chart of the week: why this share represents stunning value

18th July 2022 12:39

John Burford from interactive investor

After a dramatic collapse in price, this share has just broken up out of a technical pattern. Analyst John Burford now believes there is significant upside potential with low downside risk.

Tui shares are cheap – buy

Sentiment towards travel companies is plumbing new depths as airport chaos reigns. A scan of recent headlines for package holiday firm TUI (LSE:TUI) reveals:

  • Tui shares reach new low
  • Furious TUI passengers try to rip open door to get bags after 12-hour flight
  • Mum says passengers went into meltdown after two unauthorised passengers were removed from Tui flight from Cancun
  • Man, 59, sues Tui for £5 million from infection by food poisoning at 4-star Dominican hotel

And so on. In my 4 July COTW coverage of easyJet (LSE:EZJ) I wrote:

“As the highly negative effects of the pandemic lockdowns that grounded flights since early 2020 were easing, there was hope that the travel industry could get back on its feet. But not so. The recent well-publicised flight cancellations and airport scenes of chaos has dealt it another blow.”

And just when the summer holiday season is getting into its stride, we have record high temperatures across much of Europe that must be putting a damper on demand for holidays there.

The current picture is bleak indeed for holiday companies – and that is why I believe their shares represent stunning value.

After all, the desire for foreign travel is highly unlikely to weaken, and the airport disruptions will almost certainly ease in time. 

Here is the long-term share chart:

Past performance is not a guide to future performance.

Here, you can see the massive slide off the May 2018 high at 1,830p to last week's new low at 120p – a loss of 93%. Normally such a loss of value into the '90% Club' would awaken thoughts of near-bankruptcy – and that is always a possibility.

The company is under pressure by the need to repay the Covid relief funds it borrowed from the German government, which is making cash flow a problem – hopefully a temporary one. In any case, if repayments do become a problem, will the German government allow the firm to collapse? I don't think so.

On the basis that it can weather the current storms, the shorter-term chart indicates there are much better times ahead:

Past performance is not a guide to future performance.

This morning (Monday 18 July) the shares are breaking up out of the textbook ending diagonal following a strong momentum divergence and my main targets are shown in pink.

I believe the downside risk is low with significant upside potential. Only a decline to new lows under 120p would send me back to the drawing board.

John Burford is a freelance contributor and not a direct employee of interactive investor.

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We use a combination of fundamental and technical analysis in forming our view as to the valuation and prospects of an investment. Where relevant we have set out those particular matters we think are important in the above article, but further detail can be found here.

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