ii view: TUI battles its greatest crisis yet

The Anglo-German travel company’s shares are down over 70% in 2020. 

Half-year results to 31 March 2020

• Revenue down 1.3% to €6.64 billion (£5.91 billion)
• Adjusted (EBIT) loss of €827 million (£736 million) - H1 2019 loss of €301 million
• Full-year 2020 guidance withdrawn back in March
• €1.8 billion (£1.6 billion) German state aid bridge loan received

ii round-up:

Despite strong holiday bookings in the first quarter, TUI (LSE:TUI) reported spiralling losses as costs in relation to both Covid-19 and its still grounded Boeing 737 MAX aircraft fleet knocked it for six. 

Total March costs for both Covid-19 and Boeing (NYSE:BA) amounted to €470 million (£418 million). Measures including a proposed loss of up to 8,000 jobs, staff furloughing and a successful application for German state aid have all been made. 

TUI shares were little changed in afternoon trading having fallen by over 70% year-to-date. Difficulties for Boeing underlay a 15% decline for TUI shares over 2019.

But, like airlines IAG (LSE:IAG)and Ryanair (LSE:RYA), TUI is making preparations for a return to business, potentially as early as July.

It noted: "The foreign tourism ministries from destinations such as Greece, Cyprus, Portugal, the Balearic Islands, Austria, and Bulgaria are preparing intensively for the return of tourists.”

Given the degree of uncertainty caused by the corona crisis, TUI withdrew financial estimates or guidance for the current full-year back in mid-March. It has also suspended the dividend payment. 

With cash and available facilities totalling €2.1 billion (£1.87 billion) as of the 10 May, management believes it has sufficient funds to see it through the coming months. 

Strategy at the vertically integrated holiday company has focused on four initiatives including growing its Hotels and Cruise businesses through asset expansion, becoming a more digitally orientated platform and increasing customer upselling by offering the potential of ‘One Million Things to Do’.

ii view:

With so many factors outside of management’s control potentially influencing performance such as terrorism, fuel prices, currency movements, the holiday business can be a volatile and high-risk industry in which to invest. 

Now, management is describing the corona pandemic as “the greatest crisis the tourism industry and TUI have ever faced".

For investors, actions being taken by the company to battle Covid-19 offer some reassurance. Group cash and facilities have been bolstered from €1.4 billion back in mid-March to over €2 billion. Costs have been reduced to a crisis minimum per month. But the degree of uncertainty looking ahead remains immense. For now, TUI is an investment only for brave investors taking a long-term view.

Positives: 

• Diversified asset portfolio
• Bolstered cash liquidity

Negatives:

• Net debt up 150% to €4.9 billion (£4.4 billion)
• Significant uncertainty regarding a return to business

The average rating of stock market analysts:

Sell