ii view: TUI lowers the dividend payment

Challenges at Boeing continue to overshadow, but new dividend policy gives flexibility. 

Full-year results to 30 September 2019

• Revenue down 2.5% to €18.9 billion
• Adjusted profit down 24% to €893 million
• Dividend down 25.6% to €0.54 per share
• Net debt of €910 million from cash position of €124 million

New dividend policy:

• A core dividend payout of 30-40% of the group’s underlying adjusted earnings 
• A dividend floor (minimum payout) of €0.35 per share

Guidance:

• Between approx. €950 million - €1.05 billion, including €130 million cost impact from MAX grounding, assuming return to service by end of April 2020
• Should the MAX grounding continue to the end of FY20, additional cost impact of €220 million - €270 million expected

ii round-up:

Travel company TUI AG (LSE:TUI) reported in line full-year results, although outlined a rebased dividend policy and 2020 profit guidance which is dependent on plane maker Boeing (NYSE:BA) and its grounded 737 MAX aircraft. 

The grounded 737 cost TUI just under €300 million during 2019 and is forecast to impact 2020 by anything between €130 million to €400 million depending on the timing of the Boeing aircraft’s return to service. 

The new dividend policy is expected to result in lower payouts, but will give management increased flexibility as it undertakes investments in strategic initiatives and future growth opportunities. 

The shares retreated by more than 2% in early afternoon UK stock market trading.

The performance of the group’s Boeing hit Markets and airlines division was partly compensated for by its Holiday experiences division, including its cruise ship business, hotels and resorts and destination experiences. The number of excursion & activities sold rose by 116%. 

Group strategy focuses on four initiatives including growing its hotels & cruise businesses through asset right expansion, protecting and extending its leading positions in Markets & airlines and targeted 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 and currency movements, the holiday business can be a volatile and high-risk industry in which to invest. 

For TUI itself, the demise of rival Thomas Cook reduces industry capacity, bringing some likely modest near-term upside to earnings. A rebasing of the dividend, although not a surprise, is a disappointment, even if arguably sensible given the Boeing related uncertainties and increased financial flexibility. 

For investors, consumer confidence going forward remains key. Brexit and recessionary German economic conditions offer a tough backdrop. Following 2019’s dividend reduction, a yield of just under 5% still remains attractive, while a forward price/earnings ratio (PE) below the three-year average suggests a valuation which is not excessive.  

Positives: 

• Diversified asset portfolio
• Thomas Cook’s collapse reduces overcapacity

Negatives:

• Thomas Cook’s collapse may reduce consumer confidence to book package holidays
• Rebased dividend policy

The average rating of stock market analysts:

Strong hold