1. UK Travel & Leisure Industry Landscape

The UK Travel & Leisure Industry encapsulates a spectrum of sectors such as hotels, pubs and restaurants, travel and tourism, sport & leisure, gambling, resorts & casinos, and gaming. Moreover, the sector is largely dependent on consumer confidence and business sentiment. The industry is currently facing pressure to bring innovation, quality, and value. Some of the largest companies listed on LSE are Flutter Entertainment, Ryanair Holdings, Carnival PLC, Intercontinental Hotels, International Consolidated Airlines S.A., etc.

The industry went through a downfall after the emergence of the Covid-19 pandemic, mainly due to the lockdowns and ban on international travel. However, the industry had started witnessing an accelerated recovery since the reopening of the economy. Moreover, the rapid vaccination programs across the globe had boosted the business sentiments and reignited the hopes of the industry’s revival. Recently, airlines stocks buzzed up as investors’ sentiments got boosted after the Biden administration had eased out the travel restrictions for the passengers from the U.K. and EU.    

Key Trends in the Travel & Leisure Sector

Risk Exposures to the Travel & Leisure Sector

SWOT Analysis

Benchmark Index Performance

Based on last year performance, the FTSE All-Share Travel & Leisure index has outperformed the FTSE 100 and the FTSE 250 index. The FTSE All-Share Travel & Leisure index generated a return of about 50.67%; however, the FTSE 100 produced a return of around 18.56%, and FTSE 250 generated a return of around 33.15%

Figure 1: One Year Benchmark Index Performance

 (Source: Refinitiv; Analysis done by Kalkine Group)

Travel & Leisure Sector Outlook

The UK’s tourism industry got severely affected by the coronavirus pandemic during 2020. Nonetheless, the outlook for the travel & leisure industry had shown gradual improvement after the relaxation of Covid-19 restrictions. It seems that the worst for the industry already happened as the UK travel industry dropped by around 52% during 2020 against 2019. Moreover, it is expected that the industry will not return to the pre-crisis level until 2024. In comparison to the other countries, France and Italy performed worse, but Germany remained better than the UK. Meanwhile, the upcoming festive season may create a gradual recovery in the sector. In addition, the global online gambling market would be expected to grow at a CAGR of 10.40% between 2021 and 2026. In a nutshell, we believe that the industry already reached rock bottom, and it can only witness recovery from this point.

2. Investment analysis and stocks under discussion (TRN, PTEC, IAG)

After gaining insights into the Travel & Leisure sector, we would look at the business model of three Travel & Leisure players listed on the London Stock Exchange. 

A. Trainline PLC (LON: TRN)

(Recommendation: Speculative Buy, Potential Upside: 18.76%, Market Capitalization: GBP 1.81 billion)

Trainline PLC (LON: TRN) is an FTSE 250 Index listed company. It is the United Kingdom-based online ticket retailer, serving in more than 45 countries, with more than 270 carriers and more than 30 million cumulative application downloads.

The company will release its Interim results for six months ending 31 August 2021 on 3 November 2021.

 

One Year Share Price Chart

 (Data Source: Refinitiv, Analysis by Kalkine Group)          

From a technical standpoint, the stock price is trading between the lower Bollinger band and the middle Bollinger band, indicating an upside potential in the stock price.

Valuation Methodology

Our illustrative valuation model suggests that the stock has an upside potential of 18.76% over the closing price of GBX 359.80 (as of 28 September 2021).

B. Playtech PLC (LON: PTEC)

(Recommendation: Buy, Potential Upside: 26.38%, Market Capitalization: GBP 1.36 billion)

Playtech PLC (LON: PTEC) is an FTSE 250 Index listed developer of gambling software. It was founded in 1999 and presently operates in three segments: Gaming B2C, Gaming B2B, and Financial.

One Year Share Price Chart

 (Data Source: Refinitiv, Analysis by Kalkine Group)

From a technical standpoint, the MACD line remained above the signal line, indicating an upside potential in the stock price.

Valuation Methodology

Our illustrative valuation model suggests that the stock has an upside potential of 26.38% over the closing price of GBX 444.40 (as on 28 September 2021).

C. International Consolidated Airlines Group S.A. (LON: IAG)

(Recommendation: Watch, Potential Downside: 16.00%, Market Capitalization: GBP 9.02 billion)

International Consolidated Airlines Group S.A. (LON: IAG) is an FTSE 100 index listed company. It provides airlines in the UK, Spain, and Ireland. The company carried around 118 million passengers every year.

The company will release its Q3FY21 results on 5 November 2021.

One Year Share Price Chart

(Data Source: Refinitiv, Analysis by Kalkine Group)

From a technical standpoint, the 14-days RSI of ~64.90 suggests a correction in the stock price.

Valuation Methodology

Our illustrative valuation model suggests that the stock has a downside potential of 16.00% over the closing price of GBX 182.00 (as on 28 September 2021).

*All forecasted data and peer information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

*The "Speculative Buy” recommendation is also valid for the current price as covered in the report as on 29 September 2021.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

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