Recent vaccine news has triggered an incredible rally for many UK shares in the travel and leisure sectors.
Today, I’m looking at three stocks that have risen by at least 60% over the last four weeks. I think all three businesses will be survivors, but there’s only one of these shares I’d buy today. Read on to find out why…
Recovery could be slow
I think that demand for package holidays will probably bounce back quickly from next summer. But I think FTSE 100 holiday operator TUI (LSE: TUI) could take longer to recover.
TUI’s operations are far-reaching and complex. According to the firm’s website, it owns 150 aircraft, over 400 hotels and 17 cruise ships. It operates in 180 regions. It’s hard to imagine how the firm has handled the disruption caused by the coronavirus pandemic.
However, one thing we do know is that TUI has taken on around €4bn of new debt in order to survive this year. When business returns to normal, this debt will still need to be paid back. I think this is likely to put pressure on shareholder returns for several years.
I can also see some risk that TUI will raise cash to repay debt by issuing new shares, diluting existing shareholders.
However I look at it, TUI shares look expensive enough to me at the moment. I’m not buying.
This UK share could suffer delays
Trainline (LSE: TRN) is well known for its online rail booking service. In 2019/20, this business generated sales of £261m, 24% higher than in 2018/19. Trainline’s results for the current year have obviously suffered. But, in theory, I’d expect this business to bounce back quickly and be highly profitable.
Unfortunately, that’s not the case. Trainline reported an £81m loss last year and a £14m loss the previous year. Despite its high-tech credentials, this business doesn’t seem to be very profitable.
I guess things may improve if the business returns to growth and continues its international expansion. But Trainline’s operating model in the UK could be affected by regulatory changes to simplify ticket pricing.
City analysts reckon the company will generate a £20m profit in 2021/22. They’re forecasting earnings of 3.2p per share for next year, which values the stock at a whopping 146 times forecast earnings. That’s much too rich for me, so this is another recent winner I won’t be buying.
The UK leisure share I’d buy
Bingo halls and high street casinos may seem out of place in the pandemic world. But when Rank Group (LSE: RNK) reopened its Mecca bingo halls in August, revenue bounced back to 70% of last year’s levels within a month. The firm reported similar performances from at its Grosvenor casinos.
Rank has an online business too, and it’s investing in growth in this area. This means the company isn’t completely dependent on physical venues. Although the current lockdown will be hitting the firm’s finances hard, Rank has already raised £70m through a share issue. Its financial situation looks fairly secure to me, assuming businesses are able to stay open next year.
At around 150p, Rank shares trade on about seven times 2021/22 forecasts, with a potential dividend yield of 3.3%. I think this could be an attractive entry point for a long-term investment. I’d be happy to buy this UK share for my portfolio, despite the stock’s recent gains.