Why I’m avoiding TUI shares at all costs

TUI shares have rallied 20% in the last three months but remain 85% below their 2018 highs. Stephen Wright explains why he thinks this might be a trap.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Family in protective face masks in airport

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The recent rally in TUI AG (LSE:TUI) shares might make the stock look attractive. The TUI share price has gained 20% over the last three months, but is still 85% down from its 2018 highs. I think, however, that TUI’s financial situation makes its shares unattractive as an investment proposition.


The cause of TUI’s financial problems can be found in its income statement. The company’s costs have declined more slowly than its revenues since the beginning of the pandemic. This is because TUI has still had to maintain its aircraft, buildings, and cruise ships, as well as pay staff to do so. These are TUI’s major costs and they apply whether or not the company is collecting revenue from passengers.

As a result, a 66% decline in revenues has moved TUI from making an operating profit of £576m to losing just under £1.5bn. Looking forward, I expect this to reverse. As TUI’s operations resume, I think that its profits will rise faster than its revenues. The trouble is, I also think that the costs the company has incurred will cause a lasting problem for TUI as an investment.


As an investor, I’m looking for companies that can return cash to me within a reasonable timeframe. TUI’s current financial situation—and specifically, its debt levels—give me reason to doubt that it will be able to do this. This makes me think that TUI shares are not an investment opportunity for me.

The biggest concern that I have is that TUI has to use a lot of the money it makes paying interest on its debt. At the moment, TUI pays around £390m annually in interest. Obviously, TUI made a loss last year, which is entirely understandable. But I’m not sure that the situation improves enough even if TUI’s earnings recover to their 2018 (pre-pandemic) levels.

In 2018, TUI made an operating profit of around £576m. Even if the business recovers to that level, the company’s interest payments would still amount to around 67% of its operating income. And that is just the interest on TUI’s debt—it doesn’t include the company paying down the debt itself, which has increased by 168% since 2018.

The situation is made worse by the rising interest rate environment. In order to combat inflation, the Bank of England has raised interest rates twice since December. For a company like TUI, this makes the possibility of dealing with their debt by refinancing it less attractive. As someone thinking about investing in TUI shares, I think that this means that the company will have to pay its debt down sooner, which will further inhibit its ability to return cash to shareholders.


In my view, there is reason to think that TUI’s business will bounce back well as the restrictions associated with the pandemic end. In the meantime, the company’s share price might continue to increase. From an investment perspective, however, I think that the company’s financial situation is such that it will be a long time before it is in a position to provide an acceptable return. I also believe that there are other UK companies that provide more attractive opportunities. As a result, I’m avoiding TUI shares at all costs.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Stephen Wright 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.

More on Investing Articles

The flag of the United States of America flying in front of the Capitol building
Investing Articles

Here’s what a FTSE 100 exit could mean for the Shell share price

As the oil major suggests quitting London for New York, Charlie Carman considers what impact such a move could have…

Read more »

Two white male workmen working on site at an oil rig
Investing Articles

Shell hints at UK exit: will the BP share price take a hit?

I’m checking the pulse of the BP share price after UK markets reeled recently at the mere thought of FTSE…

Read more »

Investing Articles

Why I’m confident Tesco shares can provide a reliable income for investors

This FTSE 100 stalwart generated £2bn of surplus cash last year. Roland Head thinks Tesco shares look like a solid…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

£20,000 in savings? I’d buy 532 shares of this FTSE 100 stock to aim for a £10,100 second income

Stephen Wright thinks an unusually high dividend yield means Unilever shares could be a great opportunity for investors looking to…

Read more »

Investing Articles

Everyone’s talking about AI again! Which FTSE 100 shares can I buy for exposure?

Our writer highlights a number of FTSE 100 stocks that offer different ways of investing in the artificial intelligence revolution.

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing Articles

3 top US dividend stocks for value investors to consider in 2024

I’m searching far and wide to find the best dividend stocks that money can buy. Do the Americans have more…

Read more »

Investing Articles

1 FTSE dividend stock I’d put 100% of my money into for passive income!

If I could invest in just one stock to generate a regular passive income stream, I'd choose this FTSE 100…

Read more »

Young mixed-race woman jumping for joy in a park with confetti falling around her
Investing Articles

Forecasts are down, but I see a bright future for FTSE 100 dividend stocks

Cash forecasts for UK dividend stocks are falling... time to panic! Actually, no. I reckon the future has never looked…

Read more »