A challenging few years

The firm has had a roller-coaster ride, worthy of its own theme park, in the last few years. Over the past year, the shares have climbed a steady 6.7%. But let’s remember that this is merely a gentle updraft in what has been a collapse of epic proportions. Since 2019, the shares have plummeted a jaw-dropping 78%.

The numbers

Despite disappointing performance in the market, the summer of 2024 has been a relative breath of fresh air for the company. After returning to profits in 2023, annual revenue grew over the last year by 23% to a hefty €22.22bn. Over the same period, as many firms in the hospitality and travel sector saw declining revenue, profits reached a respectable €539.3m.

With a price-to-earnings (P/E) ratio of only 5.4 times, there’s a decent gap between the firm and the average valuation of the sector, which sits at a whopping 27.3 times. I think there could be a decent opportunity here if the market decides the shares deserve to catch up with the performance of the company.

There’s plenty of room for growth if so. A discounted cash flow (DCF) calculation suggests as much as 74% growth before an estimate of fair value is reached. With annual earnings forecast to grow by a healthy 15.83% over the next five years, analysts are predicting an average 12-month price target of 739.79p, suggesting potential growth of 31.28%.

Of course, this isn’t guaranteed. I suspect there’s a good reason the market isn’t too certain these forecasts will be met.

A tricky sector

Let’s consider the potential turbulence ahead. The company’s debt-to-equity ratio stands at a dizzying 154.8%. This $1.9bn debt could become TUI’s own personal Everest if economic winds change direction, especially when interest rates are close to the highest they’ve been in decades.

As many of us know, the travel industry is notoriously fickle, susceptible to everything from geopolitical tensions to the whims of Mother Nature. One volcanic eruption or global crisis, and TUI’s attempt at a recovery could go up in smoke.

An uncertain future

As we bid farewell to summer 2024, TUI stands at an interesting moment. On one side, a path of continued recovery and growth beckons, leading to sun-soaked profits and happy shareholders. On the other, a rocky road of potential setbacks and challenges looms, threatening to send the share price tumbling.

For me, the TUI share price looks like a decent opportunity. Sure, the sector is a challenge, and the company’s balance sheet is far from ideal. However, with plenty of potential for growth, I’ll be taking on a small position at the next opportunity.

The post As summer ends, what’s next for the TUI share price? appeared first on The Motley Fool UK.

What went wrong?

TUI’s a global tourism group headquartered in Germany. From luxurious resorts to cruise ships and package holidays, TUI has its fingers in virtually every pie of the tourism sector. But despite its diversified portfolio, the company’s struggled in recent years.

The numbers paint a stark picture. The TUI share price now sits below €7, a far cry from its heady highs of just a few years ago. Yet, amid this gloomy backdrop, I think there are still a few glimmers of hope that might signal a potential turnaround.

Some areas of optimism

First, let’s address the elephant in the room — profitability. After years of losses, the firm has finally climbed back into the black. Management reported earnings of €509.40m over the trailing 12 months, translating to an earnings per share (EPS) of €1. This return to profitability is a crucial first step on the road to recovery.

Moreover, TUI’s valuation metrics are starting to look intriguing. The company’s currently trading at a price-to-earnings (P/E) ratio of 6.6 times, significantly below many of its peers in the hospitality industry. This suggests TUI might be undervalued, especially considering its brand recognition and market position.

But perhaps the most tantalising metric for potential investors is this. According to a discounted cash flow calculation (DCF), the shares are currently trading at a whopping 47.8% below the estimate of fair value. If this assessment proves accurate, it could mean substantial potential for those willing to weather the turbulence.

Looking ahead, the forecast appears cautiously optimistic. Earnings are projected to grow by 15.23% a year, a respectable clip that could help fuel a share price recovery. However, it’s worth noting that the firm operates in a highly cyclical and volatile industry, subject to external shocks ranging from geopolitical events to public health crises.

Plenty of challenges remain

One significant challenge facing TUI is its debt burden. With a debt-to-equity ratio of 166.2%, the company’s carrying a hefty load that could hamper its ability to invest in growth initiatives or weather future storms. Management’s ability to navigate this high debt level will be crucial to TUI’s long-term recovery prospects.

So will the TUI share price ever recover to its former highs? The honest answer is, it’s complicated. The company’s made significant strides, returning to profitability and showing signs of undervaluation. However, the path to full recovery is fraught with challenges, from high debt levels to the inherent volatility of the tourism industry.

Those with a strong stomach for volatility and a belief in the long-term resilience of global tourism might see an opportunity. However, I feel TUI’s journey back to its glory days will likely be a marathon, not a sprint.

I’ll be putting my money to work elsewhere for now.

The post Down over 70% in 5 years, will the TUI share price ever recover? appeared first on The Motley Fool UK.

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.

The post Earnings breakdown: what’s next for the TUI share price? appeared first on The Motley Fool UK.

Like a number of holiday companies, the business saw its bookings, revenues, and profits all recover from the pandemic. But unlike other travel firms, the stock went down.

Post-pandemic (part 1)

All over the stock market, 2023 was a year of post -pandemic normalisation. Resurgent demand saw  Rolls-Royce lead the FTSE 100 higher, while excess inventory in vaccine manufacturers caused Croda International to fall.

Elsewhere in the travel sector, easyJet and International Consolidated Airlines Group both saw their share prices surge. But TUI went the other way.

Things began brightly enough – the stock rose in January as the company announced that bookings were back above 2018 levels. And by the end of the year, revenues and profits followed.

That’s despite unusually hot weather causing wildfires in Rhodes and costing the company around £21m. So what did go wrong for TUI shareholders in 2023?

Post-pandemic (part 2)

TUI’s operations may have snapped back to their pre-pandemic levels, but its balance sheet didn’t. One of the big issues for the company at the start of the year was the amount of debt it had.

In order to repay a loan to the German government, the company announced in March it would be raising cash by issuing shares. As a result, the share count increased from 338m to 507m.

That’s a significant increase, but there are a couple of positives. One is that I thought the company’s communication with shareholders was outstanding – it was clear, straightforward, and honest.

As well as demonstrating good management, the share count raise also brought the company’s debt under control. The firm finished the year with net debt at 1.2 times cash profits, down from 2.8 times.

Outlook

Management’s forecast for 2024 is optimistic. The expectation is for bookings to grow by 11%, revenues to increase by 10%, and cash profits to be up 25%.

Considering where the company is at the moment, that would be extremely impressive and it would be hard not to see the stock as a bargain if that comes off. But I see reason for caution.

A look back over the last decade shows that TUI hasn’t put together three years of consecutive revenue growth during that period. That includes the pandemic, but isn’t the only reason.

The travel industry is highly cyclical and I’ve got an eye on a weak GDP situation for the UK in 2024. So while I hold TUI’s management in high regard, I’m cautious of the optimistic outlook.

A stock to consider buying?

At a price-to-earnings (P/E) ratio of 9, TUI shares look cheap. But I think that depends on the company’s earnings in 2023 not being a one-off.

I’m not convinced about this. With the UK on the edge of a potential recession, I’m hesitant about the outlook for the business in 2024.

I therefore think TUI is a risky FTSE 250 stock. Though, with the company considering delisting from the UK stock exchanges, it might not be a FTSE 250 company much longer.

The post Here’s why the TUI share price fell 22% in 2023 appeared first on The Motley Fool UK.

Poised for take-off?

TUI AG (LSE:TUI) was one of the firms hardest hit by the pandemic. As a flight and holiday operator, lockdowns meant business all but dried up. Even over the course of 2021, many were cautious about going abroad again.

This long road back to financial recovery has been reflected in the share price. Even if I take out the volatility around the stock market crash in early 2020, the share price is still down 58% over the past three years. Over the last year, it’s down 36%.

I think the main risk going forward is investors being too pessimistic and writing the firm off.

At the current levels, I think the stock is dirt cheap. This is based on what future earnings could look like. The business recorded a profit after tax of €532m in 2019. After losing billions in 2020 and 2021, the loss for 2022 shrunk to €212m. In the latest update for 2023, the report said “we reconfirm our expectations to increase underlying EBIT significantly for FY 2023”.

So it’s clear to me that within the next couple of years, TUI should flip back to a similar level of profitability seen in pre-pandemic 2019. If this is correct, then the share price should jump considerably from its current low.

Finding the plus side

The other firm on my radar is Plus500 (LSE:PLUS). The FTSE 250-listed online retail trading platform has struggled over the past year. This has been due to lower volatility in some markets and also heightened competition. As a result, the share price is down 20% over the past year.

Despite this, the company has been pushing to grow in key markets. This includes the US, Japan and the UAE. The Q3 update showed this expansion is going well.

The stock looks cheap to me based on both the present and future readings. As we currently stand, the price-to-earnings ratio is 4.9. This is dirt cheap, far below the benchmark figure of 10 that I use to assign a fair value.

Looking at the future, the investment being made to push into large new markets could yield some fantastic results. Granted, this push can also be seen as a risk, with competitors jostling for market share. Yet any increase in revenue can filter down quickly to the bottom line. This is thanks to the high EBITDA margin of 48%. Put another way, Plus500 has a low cost base that allows more revenue to turn into profit.

I believe investors should take a closer look at both ideas.

The post 2 dirt cheap UK shares that might not remain bargains forever appeared first on The Motley Fool UK.

A difficult few years

TUI shares have been one of the worst performers on the FTSE 250 since the pandemic. With the company primarily focussed on leisure hotels and resorts, there was an incredible amount of uncertainty surrounding the future of the sector. Nobody knew if the world would ever be the same again, and companies were forced to take extreme measures to survive. In the case of TUI, this led to adding a huge amount of debt to the company’s balance sheet.

With £1.5bn of debt, compared to the overall market cap of the company at £2.1bn, there isn’t much room for manoeuvre. In the last year alone, in order to raise money, the number of TUI shares increased by 184%, meaning that existing shareholders have seen the value of their ownership drop significantly, in addition to the losses seen in the share price.

This is the distinction between TUI and the other companies in the sector that have suffered less with respect to share price. TUI placed a heavy burden on shareholders to help the company through the worst of the pandemic, whereas other companies had the cash reserves to tolerate a temporary downturn.

Why might investors be interested?

It’s not all bad news. As much as the debt of the company and share dilution has likely spooked investors, there are some good signs for the future. Compared to the travel sector, TUI shares have a price-to-earnings (P/E) ratio of 12.1 times, much lower than the average of 27 times. Furthermore, a discounted cash flow calculation puts fair value of TUI shares at £11.31, considerably above the current price of £4.14. So as much as things look shaky for the business at the moment, there could be a tremendous opportunity for investors willing to play the long game.

With the worst of the pandemic now hopefully behind us, the issue becomes how the company will tackle its enormous debt burden. Travel is clearly back on the menu again, and with annual growth estimates for earnings at 32%, there’s a good chance TUI can claw back a commanding position in the sector. The question will be whether competition will move faster, with a sector average of 34% per year.

With such a heavy debt burden, TUI may struggle to compete, since interest payments become a large part of the company’s operations. However, with a return on equity of 34%, TUI is highly efficient with shareholder investment, above the sector average of 8%. If TUI can innovate and run a slick operation for the next few years, it has a good chance of making the debt less of an issue, bringing back investor enthusiasm.

Am I buying?

As much as the TUI share price may be an opportunity, I don’t want to be involved with a company holding onto such a large debt relative to its size. I’ll be staying well clear of TUI shares for now.

The post Are things about to get even uglier with the TUI share price? appeared first on The Motley Fool UK.

The German travel firm is down 88% from before the pandemic. It’s down 63% this year and 21% in only the last month. Over five years, it’s the second-worst-performing stock on the FTSE 250. That’s a rough few years.

Why are the shares dropping?

Good news might be on the way. Covid is out the picture, and other travel-related stocks like easyJet and IAG are already climbing back up. We could be at a turning point for TUI shares. 

To explain why, the first question we need to look at here is: why are the shares still falling?

Well, it’s not because TUI is a bad business. Before the pandemic, it was one of the world’s leading travel companies. It had a market value over £10bn and the shares traded as high as £118. That’s quite a drop to the current price below £5 (actually it’s £4.79). 

Why investors are put off

The firm didn’t stick to airlines, hotels or cruises, it did the whole lot. This was part of its appeal for investors, but it also meant Covid was a huge problem. 

TUI built up tonnes of debt after 2020. That’s not a shock though. Lots of companies did that to keep the lights on. It was the firm’s response that caused the problems.

It handled this with a series of rights issues. This helped manage the debt, sure, but it took plenty of value from shareholders. The latest was for £1.6bn earlier this year. That’s a big sum compared to the firm’s £2.4bn market cap. 

If investors are put off, I’m not surprised. After all, the firm still owes billions. Who’s to say another dilution won’t come along?

The good news

Those airlines, easyJet and IAG, didn’t do this. They didn’t look towards shareholders to pay off their debts. They expected that the future profits would do it. And as far as TUI is concerned, the forecast profits are a glimmer of hope here. 

So here’s the good news. Q4 earnings are forecast to be £1.1bn. That’s up from £33m for Q3. That’s a huge bump. It could be the turning point. 

Am I buying?

With earnings that high, debt and financing could be quickly handled. A share price less than £5 could look very cheap considering the forecasts expect a lot of profit compared to TUI’s market value.

Is that enough for me to buy in? Well, it’s a speculative buy. I’d be investing in a company with a track record of diluting shareholders. Not my cup of tea, if I’m honest.

On the other hand, TUI could meet expectations and be swimming in cash. It might be the catalyst for the stock to surge higher. I’ll add it to my watchlist.

The post £5 could be the turning point for TUI shares appeared first on The Motley Fool UK.

I don’t own shares in the company, but if I’d invested £1,000 back in July 2018, how much would I have today? And can the holiday firm revive its ailing fortunes?

Let’s explore.

Five-year return

Five years ago, the TUI share price stood just shy of £49. Today, the stock is changing hands for a mere £5.63. That means it’s suffered a colossal 88.5% decline over the timeframe.

Undoubtedly, the pandemic was a considerable factor in accelerating the fall in TUI shares. Travel restrictions suppressed demand, but the stock was already in a downtrend before the arrival of Covid-19.

Concerning numbers and weakness in the company’s balance sheet have quashed recovery hopes in the post-pandemic trading environment.

In July 2018, I could have bought 21 shares for a grand total of £1,028.58. Fast-forwarding to the present day, my shareholding would have shrunk in value to just £124.53. Ouch!

The group hasn’t paid a dividend since 2020. However, I would have a little passive income to add from the pre-pandemic period to soften the blow slightly. Including dividends, I’d be left with £147.12 today.

The next destination

The German-headquartered company delivered a mixed set of financial results for the first half of FY23. Losses totalled €242.4m. This figure is an improvement on last year’s €329.9m loss for the same period, but it was slightly worse than City analysts anticipated.

TUI could perform well over the crucial summer period. Around 2.4m customers booked holidays in Q2, which represents a year-on-year increase of 600,000. However, bookings haven’t quite recovered to pre-pandemic levels yet.

In addition, the firm can now repay the German government in full for the state aid it received to survive the pandemic, thanks to a €1.8bn discounted share issue. Nonetheless, I think it’s too early to say the company is out of the woods just yet.

Net debt remains uncomfortably high. Plus, the performance of its cruise division continues to lag tours and hotels, which have both experienced a stronger recovery.

Should investors buy?

If investors are considering adding TUI shares to their portfolios, today’s price could be a potential bargain. The stock is trading near a five-year low and there are some causes for optimism with early signs that the green shoots of recovery are beginning to emerge.

However, I’m not rushing to buy the stock just yet. The company is still making big losses and the fact that bookings haven’t recovered to where they were in 2019 is a major concern.

New flight routes for 2024 from a range of UK airports, including Gatwick, Stansted, Manchester, and Glasgow, could improve the long-term outlook for share price growth. But, at present, I think the stock carries too much risk for me.

I’ll closely monitor the next set of results for clear signs of improvement and re-appraise the stock’s investment prospects at that point.

The post If I’d invested £1k in TUI shares 5 years ago, here’s how much I’d have now! appeared first on The Motley Fool UK.

That’s perhaps unsurprising given the combination of global travel disrupted by Covid-19 and the company’s longstanding debt pile.

So far, these factors have proved potent enough to deter investors like me from buying in.

But with the group taking positive steps to lower debt, could now be a good time for me to take the plunge and buy some cheap TUI shares for my portfolio? Let’s take a look.

Rights issue to the rescue

In March, TUI announced the launch of a rights issue to raise up to €1.8bn. The aim is to repay loans given to the company by the German government during the pandemic.

Flash back to September 2022 and the company’s net debt stood at a staggering €3.4bn. So, to combat this, proceeds from the new shares will be used to reduce interest costs and and lower debt by €1bn.

As a result, the rights issue is a positive move in my eyes. After all, reducing debt and strengthening the balance sheet was going to be paramount for the company going forward.

With TUI’s debt pile being addressed, I’m happy to now consider the wider business before deciding what action I should take.

Clawing back pre-Covid capacity

In early April, the company reported that bookings and trends for the Easter holidays confirmed strong demand across all markets for sunshine destinations.

Over 500,000 customers were expected to holiday with TUI over Easter, with load factor expected to be in the range of 95%. Impressively, that’s broadly in line with pre-Covid levels.

This means the company now has 1m more passengers than at this time last year.

Debt levels are still a concern

But it won’t be plain sailing for TUI. Despite the recent rights issue, the company still comes with substantial liquidity risk.

The group’s debt levels are still much higher than what I’m comfortable with. In fact, they look especially concerning when looked at as a proportion of profits.

In my view, sustained efforts to get debt back under control must remain the number one priority for TUI. Any deviation from that mission represents a major risk.

In light of the above, if I was to hoover up some TUI shares, I wouldn’t be expecting dividends any time soon.

A bright future outlook?

That said, I’m fairly confident that TUI’s prospects aren’t all that dim in the long run.

For example, I’m encouraged by the company’s ability to increase prices. To me, this proves the underlying strength of the brand and demonstrates customers’ willingness to travel even amid cost-of-living constraints.

Another thing I like about TUI is that it doesn’t just run flights, but has a much wider package holiday business.

Therefore, considering that customers don’t want to give up their holidays, I think TUI’s vast offering of package and all-inclusive deals positions the company well to cash in on the rebound in global travel.

Nevertheless, I personally think there are other travel stocks with a stronger investment case at the moment. I’ll be passing up on the opportunity to buy TUI shares for now.

The post Buy the dip: should I snap up cheap TUI shares before it’s too late? appeared first on The Motley Fool UK.

Recently though, things have started to change. The company’s balance sheet is improving and travel demand is returning to pre-pandemic levels – so are TUI shares worth another look?

A 200% return?

Five years ago, TUI had a share price of £18.47. If the stock gets back to that level, then an investor buying its shares today would see a gain of almost 200%.

I think this looks unlikely. To stay afloat during the pandemic, the business took on huge debts and repaying those has dramatically increased its share count. 

Back in 2018, TUI generated £649m in net income. With 1.1bn shares, that resulted in 58p in earnings per share (EPS).

Today however, the company’s share count is much higher. By my calculations, the latest rights issue looks set to take the number of TUI shares up to 2.15bn.

Making 58p in earnings per share with that many shares requires net income of £1.25bn. But this doesn’t look plausible to me – the most the business has made in the last decade is £886m.

Are TUI shares a bargain?

If a 200% return looks unlikely, then what would a more realistic expectation be for an investor like me?

Suppose TUI is about to get back to its previous profit levels – demand is currently strong, after all. With 2.15bn shares, £886m profit means 41p per share.

At today’s prices, this implies a price-to-earnings (P/E) ratio of 16. That’s not the highest on the stock market, but it isn’t an obvious bargain either.

I think this means TUI’s shares could go up if earnings come in higher than expected. But I wouldn’t count on this happening.

Others disagree though – the stock jumped 12% on Thursday. But I don’t think the underlying business has the earnings power to provide a return at today’s prices.

Outlook 

To me, it looks as though TUI has replaced one problem with another. Instead of a balance sheet issue, it now has a profitability issue.

Arguably, this is better for the company. A high share count might weigh on earnings per share, but it doesn’t threaten to bankrupt the business the way that excess debt might.

But this isn’t much good to investors looking to buy TUI stock. It means that the company’s shares are likely to be worth less than they were before and this is what ought to matter to shareholders.

That’s why I’m not looking to add TUI shares to my watchlist right now. Even with an improved balance sheet and demand looking strong, I think I can do better elsewhere.

The post Is it finally time to add TUI shares to my watchlist? appeared first on The Motley Fool UK.