Earnings breakdown: what’s next for the TUI share price?

The TUI share price is looking dirt cheap as revenues and underlying profits hit record highs while debt continues to fall. Is now the time to buy?

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Over the last 12 months, the TUI AG (LSE:TUI) share price has tumbled quite significantly. In fact, the stock is down more than 40% as part of its continued decline since mid-2021. It seems investors have become quite pessimistic surrounding this enterprise, pushing the price-to-earnings ratio to around 9.1.

But the market capitalisation has started to bounce back in the last few months. And following today’s (13 February) results, is it actually a screaming buy?

A new chapter for TUI

After the pandemic decimated the travel and holiday industry, a lot of hope has understandably been lost within this sector. However, TUI is starting to stand out among its peers.

Revenue across its 2024 first quarter grew by 15%, reaching €4.3bn – a new record high. But more importantly, underlying EBIT is back in the black, landing at €6m versus a loss of €153m last year. Upon closer inspection, these figures are seemingly being driven by an industry-wide bounceback, with hotels, cruises, and airlines seeing a rapid recovery of demand, despite price hikes.

Overall, the firm catered to 3.5m customers during the quarter, pushing the group’s load factor to 86% versus 85% last year. And this upward trajectory may be set to continue. Winter package holiday bookings reached 87%. That’s 8% higher than last year. Meanwhile, families appear to be preparing for the summer, as bookings for these trips have subsequently reached 32%. Although this latter figure is in line with historical performance.

However, one of the most crucial factors investors are keeping an eye on is debt. With the balance sheet being flooded with new loans to survive the 2020 pandemic, management continues to allocate a large chunk of capital to debt reduction. And further encouraging progress has been made.

The amount of loan obligations and lease liabilities have dropped from €6.94bn to €5.78bn thanks to increased operating cash flows, moving the group further towards its net leverage target of one times and the restoration of its BB bond rating.

Overall, with management maintaining a full-year outlook at 10% revenue growth and 25% underlying EBIT growth, it seems the TUI share price is on track for a steady recovery.

Time to buy?

While the shares have been trending upward since October, they continue to look cheap. And on the back of the most recent results, investors have good reason to be optimistic. At least, that’s what I think. Therefore, it may seem that now is a good time to consider snapping up shares at a discount.

Unfortunately, there remains a giant question mark over the firm when it comes to its public listing. The business is planning to exit the London Stock Exchange to have its sole listing in Frankfurt. Management has noted a significant shift in liquidity moving out of London over the past few years. And this decision would also eliminate the need to comply with two different sets of listing regulations eliminating costs.

TUI isn’t the only firm considering an exit from the UK. Smurfit Kappa and Pearson are two other UK-listed businesses thinking about making the switch. And it’s unclear what the fate of shareholders will be should this eventually happen.

Therefore, I’m still on the fence. With no significant updates on this discussion in today’s results, investors are still in the dark. And that’s not something I’m keen to add to my portfolio regardless of a potential buying opportunity.

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.

Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has recommended Pearson Plc. 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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