ii view: TUI descends into a major loss

The shares remain down over 50% in 2020, but bookings have picked up following vaccine news.

Full-year results to 30 September

• Revenues down 58% to €7.95 billion
• Loss of €3 billion, down from a profit of €894 million
• No dividend payment
• Net debt up by 400% to €4.56 billion

ii round-up:

German headquartered holiday company TUI (LSE:TUI) has reported a €3 billion loss and a 400% rise in net debt year-over-year, as it continued to battle what it previously described as “the greatest crisis” it had ever faced.

It increased its cost saving programme to €400 million per year from a previous €300 million, although once again and given the degree of outlook uncertainty, offered no financial guidance for the months ahead. 

TUI shares fell by more than 2% in UK trading, with the price having already more than halved year-to-date. Shares of British Airways owner IAG (LSE:IAG) are down by around 60% in 2020. Shares of budget airline easyJet (LSE:EZJ) remain down by around 40%.

TUI further reduced its winter holiday capacity to a reduction of 80% of that offered in 2019 from a prior 60%, although maintained its summer 2021 capacity at the previous 80% already detailed.  

Summer bookings are down 10% versus the same point last year for summer 2020. The average selling price is up 14%, comprising of both new bookings and re-bookings. Some upturn in recent bookings was highlighted following positive vaccine news. 

TUI only last week confirmed another finance package. This time for €1.8 billion provided by a mix of private investors, banks and the German federal government. Following the top-up, group cash and available facilities now stands at €2.5 billion. 

The dividend remains suspended given the terms of its German government support packages. Its main Brexit concern is whether its airlines will continue to have full access to European Union airspace after the transition period. The UK and the European Union remain locked in trade talks. 

ii view:

TUI is an integrated holiday company which includes 1,600 travel agencies and online booking portals, five airlines with around 150 aircraft, over 400 hotels and 17 cruise liners. 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. The global pandemic has tested the tourism industry and TUI beyond anything suffered previously. 

For investors, management’s continued attack on costs offers some reassurance. As does the company’s indications of perceived pent-up customer demand. Some hotel sales should also see proceeds of up to €0.5 billion received in 2021. But the uncertain outlook still leaves management unable to offer any 2021 financial guidance, net debt continues to increase, and interest costs are expected to rise. In all, TUI remains an investment for brave long-term speculative investors only. 

Positives: 

• Diversified asset portfolio
• Pursuing a reduced cost base

Negatives:

• Elevated debt
• Significant uncertainty regarding the outlook

The average rating of stock market analysts:

Sell