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Is the worst over for the TUI share price?

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The Costa Fortuna at Port Nagasaki
Image: Carnival

German cruise operator TUI (LSE: TUI) has had a disastrous past year, but things seem to be on the mend. The FTSE 250 company released its results today, which clearly show improved performance. 

TUI posts improved results

The results cover the April-June quarter, which is the third quarter (Q3) of its financial year. During this quarter last year, there were far more travel restrictions, while rapid vaccinations have made it far more possible now. As a result, the company’s revenues are up 805%. It still reported an €940m loss, but even this is significantly reduced from Q3 last year. 

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The next quarter promises to be positive too. The company reported summer bookings for 4.2m customers, a 1.5m rise since the last update. It also expects to reach 60% summer 2019 volumes. 

TUI share price can rise now

These developments should bode well for the TUI share price, which is still at around half the levels at which it started 2020. Since the results, the share price is up some 1%, which is not terribly significant but it does indicate a positive investor reaction to its update. The stock is also up 65% from a year ago, indicating that it has come a long way already from the worst of the corona-crash. 

Moreover, as per Financial Times data, the most optimistic analysts expect its share price to increase by a huge 85% from its current levels in the next 12 months. Of course these numbers are subject to change depending on how the pandemic progresses.

What can go wrong

And indeed, we do need to watch out even now. Consider the UK’s example, where more than 75% of adults are now fully vaccinated. However, disturbingly enough, there has been an over 6% increase in people testing positive for Covid-19 in the past week. The same percentage increase was also seen in the number of deaths in 28 days of testing positive. If these numbers get worse, travel may still be impacted.

Also, we do not know what post-summer travel demand will be like. This is partly because the virus could get stronger during the winter months. Moreover, the economy is yet to get back on its feet. As per numbers released earlier today, the economy grew by a healthy 4.8% in the April-June quarter, but it is still slightly lower than the 5% growth expected by the Bank of England. If the recovery over time does not turn out to be as strong as expected, consumers may not splurge on discretionary purchases, like cruises.

My takeaway 

That could hold the TUI share price back. On the whole though, I think the prospects for it are far better than anytime in the past year. When I last wrote about it, I was waiting for concrete signs of revival, which are there in the latest numbers. It is still a somewhat risky buy, but now it is a buy for me. 

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Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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