Travel stocks rallied in Europe as Germany and Spain lifted their travel restrictions. The industry has been keen to reassure passengers that air travel is safe. Travel stocks got bit of relief with easing of curbs on tourism as the sector was hammered significantly in the last 3 months amid Covid-19 mayhem.

Carnival PLC

Carnival PLC - Additional Actions to Strengthen Ability to Manage through Prolonged Pause in Guest Operations

Carnival PLC (LON: CCL) is a leisure travel group, which operates in Europe, Asia, North America, and Australia.

Carnival Plc is listed in FTSE 100 index, which was most impacted by the COVID-19 crisis. Due to this uncertainty, the current standings of the company would have falling out of the FTSE 100, but the Group stay attractive, and once restrictions are lifted should return to growth.

Growth Trajectory Holds Upside Potential
The long-term prospects of the Group remain strong, and this could be an attractive opportunity for investors to invest in this company for the long term.

Recent News
On 14^th May 2020, the Company announced several additional steps to further strengthen its liquidity position in the event of an extended pause in guest operations due to COVID-19.

Trading Update (for the first quarter ended February 29, 2020)
On 3^rd April 2020, the overall update reflected an increase in revenue and enhancement in cash position and financial flexibility. During the first quarter of 2020, the Company’s total revenues increased to $4.8 billion as compared to $4.7 billion in the prior year. Adjusted net income was $150 million in Q1 FY2020 as compared to adjusted net income of $338 million in Q1 FY2019. This includes the cancellation of voyages and other disruptions in the first quarter of the fiscal year 2020.

Share Price Performance

1-Year Chart as at May-27-2020, before the market close (Source: Refinitiv, Thomson Reuters)

On 27th May 2020, before the market close (at 8:30 AM GMT+1), Carnival PLC’s shares were trading at GBX 1,190.50 and were up by 7.16 per cent versus the previous day closing price. Stock 52 weeks High and Low are GBX 4,079.00/GBX 581.00.

Valuation Methodology

 
Valuation Metrics

(Source: LSE)

As on 30^th April 2020, the Price/Earnings, EV/EBITDA and Price/Book multiples of the CCL were 3.5x, 3.9x and 0.4x, respectively and the same multiples were lower as compared with the Travel & Leisure industry. It is reflecting that the company is trading at a lower multiple as compared to its peers.

Conclusion
The Company expected to have a negative impact on its financial results and liquidity due to the outbreak of the Coronavirus. The Group reported a strong start of wave season with booking volumes for the three weeks ending January 26, 2020, was higher than the last year. CCL has taken several actions to reinforce liquidity such as reduction in planned capital expenditure and non-priority operating expenses, while they are pursuing additional financing options. However, for the seven-week period ending March 15, 2020, booking volumes for the remaining year was below as compared to the last year because of the negative impact of COVID-19. The Group has a decent business model, which could drive the growth of the company and could also sustain the development of the company.

Over the four years (FY15 – FY19), the company’s revenue surged from USD 15,714 million in FY15 to USD 20,825 million in FY19. Compounded annual growth rate (CAGR) stood at 7.29 per cent.

Based on the decent prospects, which are supported by valuation done using the above method, we have given a “BUY” recommendation at the closing price of GBX  1,111 (as on 26th May 2020) with lower double-digit upside potential based 9.50x NTM Price/Cash Flow (approx.) on FY20E Cash Flow Per Share (approx.).

International Consolidated Airlines Group SA – Operating with Strong Business Model

International Consolidated Airlines Group SA (LON: IAG) is operating as airline group, headquartered in London, United Kingdom.

On 31^st July 2020, the Company will release its 2020 Half-year results.

Recent News
On 7^th May 2020, the Group announced the appointment of Luis Gallego, as a Group Chief Executive, which will be effective from 24^th September 2020.

First Quarter of 2020 Highlights (for the three months to March 31, 2020)

(Source: Q1 Results, Company Website)

As on 7^th May 2020, the Group reported its first quarter update for 2020. The overall results reflected a robust balance sheet and adequate liquidity.With most aircrafts grounded, the passenger capacity declined by 94 per cent from late March. The Company has a robust balance sheet and adequate liquidity position with cash and undrawn facilities of EUR 10 billion as on 30th April 2020. The group is planning to return to service in the month of July and expect around 50 per cent reduction in passenger capacity and expect its Q2 results to be worse than Q1. The loss after tax (before exceptional items) stood at EUR 556 million with a cash balance of EUR 6,945 million as at 31st March 2020.

Share Price Performance

1-Year Chart as at May-27-2020, before the market close (Source: Refinitiv, Thomson Reuters)

On 27th May 2020, before the market close (at 8:50 AM GMT+1), International Consolidated Airlines Group SA’s shares were trading at GBX 242.70 and were up by 3.81 per cent versus the previous day closing price. Stock 52 weeks High and Low are GBX 684.00/GBX 159.25.

From the technical standpoint, its shares were trading well above its short-term support level of 20-day simple moving average prices, which reflects an uptrend in the stock and carrying the potential to move up further.

Valuation Methodology

*Peers: Stagecoach Group Plc, National Express Group Plc, Ryanair Holdings Plc, and Wizz Air Holdings Plc.

*Currency Exchange Rate Taken for 1 EUR =0.89007 GBP.

Valuation Metrics

(Source: LSE)

As on 30^th April 2020, the Price/Earnings, EV/EBITDA and Price/Book multiples of the IAG were 3.0x, 2.3x and 0.7x, respectively and the same multiples were lower as compared with the Travel & Leisure industry. It is reflecting that the company is trading at a lower multiple as compared to its peers.

IAG’s Strength
China Southern Airlines and British Airways signed a joint business contract which will benefit clients by adding more destinations between China and the UK with a greater choice of flights and improved frequent flyer benefits.

Conclusion
The Group has a robust balance sheetwith adequate liquidity to tackle the situation and have access to facilities from the UK & Spanish Governments and extended RCF (Revolving Credit Facility) to boost liquidity. Most of the Aircraft are grounded; hence, the passenger capacity declined significantly. Once again, the group has shown the strong and flexible model through decreasing capacity progress to reflect market conditions and by additional cost control. At the end of April, the liquidity was stated at EUR 10 billion. The Company is taking initiatives to improve its cash flows and reduce operating costs. The Group appears to be attractive, and once restrictions are lifted, IAG should return to growth.

Over the four years (FY15 – FY19), the company’s revenue surged from EUR 22,858 million in FY15 to EUR 25,506 million in FY19. Compounded annual growth rate (CAGR) stood at 2.78 per cent.

Based on the above rationale, we have given a “Hold” recommendation at the closing price of GBX 233.80 (as on 26^th May 2020).

TUI AG - Future TUI will be Leaner, Less Capital Intensive & More Digital

TUI AG (LON: TUI) is a Germany-based integrated tourism group with a broad portfolio gathered under the umbrella, ranging from tour operators, travel agencies to airlines, hotels, and cruise liners.

In August 2020, the Company will announce its Q3 FY20 Results.
Financial Highlights (for the period of 1st October 2019 to 31st March 2020)

(Source: Presentation, Company Website)

As on 13^th May 2020, the group released its FY20 half-year results. The overall results reflected a group-wide impact from COVID-19 travel suspension and offsetting decent start to the financial year. The first five months saw a strong start into FY20, with the first month of 2020 being the best bookings month in the TUI's history. InMarch 2020, the Group experienced an unprecedented international travel suspension, due to Coronavirus escalated into a pandemic. Led by a lost contribution in March 2020 and costs arising from COVID-19 shutdown, the Group’s underlying EBIT loss decreased by EUR 512 million to EUR 813 million in the first half of 2020 as compared with the corresponding period of the last year. The lost contribution and costs incurred due to COVID-19 travel suspension in March, amounted to EUR 470 million. On 15 March 2020, FY20 guidance withdrawn in view of the current unprecedented crisis, reflecting an unknown period of worldwide travel suspension as a result of COVID-19.

Share Price Performance

1-Year Chart as at May-27-2020, before the market close (Source: Refinitiv, Thomson Reuters)

On 27th May 2020, before the market close (at 8:55 AM GMT+1), TUI AG’s shares were trading at GBX 574 and were up by 25.11 per cent versus the previous day closing price. Stock 52 weeks High and Low are GBX 1,090/GBX 218.

From the technical standpoint, its shares were trading well below its long-term support level of 200-day simple moving average prices, which reflects a downtrend in the stock.

Key Risks
Various global travel bans resulting in the suspension of all operations until mid-June and Cruise brands are suspended until mid/end June 2020, due to COVID-19 pandemic. Any change in regulations and government policies could affect the overall business of the company.

Conclusion
FY20 guidance was withdrawn, reflecting an unknown period of worldwide travel suspension as a result of COVID-19. The Company launched an international realignment programme targeting to permanently decrease the overhead cost base by 30 per cent. Summer 20 bookings down by 36 per cent due to COVID-19 with ASP up by 11 per cent y-o-y, 35 per cent of the programme sold versus 59 per cent in Summer 19. TUI has a decent business model and is in a good position to rebuild a robust financial profile. Led by the operational impact created by COVID-19, the various global travel bans resulting in the suspension of all operations until mid-June.

Based on the above rationale and risks associated, we recommend investors to keep a “Watch” on the stock at the current price of GBX 621.80 (as on 27th May 2020, before the market close as at 8:52 AM GMT+1), with support from few catalysts needs to be evaluated at a later stage.

Easyjet PLC - Operating with Substantial Liquidity Amid Elevated Global Volatility

EasyJet Plc (LON: EZJ) is a low-cost European point-to-point airline company.

In the last three months, the share price of EZJ was lifted down by more than 50 per cent, due to the unprecedented crisis created by COVID-19. It was the most valuable stock in the FTSE 100 index before the crisis. As per the current standings, the Group would fall out from the FTSE 100 index in the coming month.

On 30th June 2020, the Company will announce its H1 FY20 results.

Recent News
On 26^th May 2020, the Company announced that Andrew Findlay had advised the Board of his intention to leave EZJ.

On 21^st May 2020, the Group announced that it would resume its flight services on June 15, 2020, along with new biosecurity measures.

Trading Update for the Six Months ending 31 March 2020 (as on 16^th April 2020)

(Source: Presentation, Company Website)

Overall results reflected a decline in the number of passengers and a decent liquidity position. Led by an increase in the passenger revenue and ancillary revenue, the total revenue surged by 1.6 per cent to GBP 2,382 million in H1 FY2020 from GBP 2,343 million in H1 FY2019. The reported airline revenue/seat increased by 9.6 per cent to GBP 55.60 in the first half of the financial year 2020 versus GBP 50.71 in H1 FY2019. The group’s reported headline airline cost/seat increased by 5.5 per cent to GBP 59.75 in H1 FY2020 from GBP 56.66 in H1 FY2019.

Share Price Performance

1-Year Chart as at May-27-2020, before the market close (Source: Refinitiv, Thomson Reuters)

On 27th May 2020, before the market close (at 8:37 AM GMT+1), Easyjet PLC’s shares were trading at GBX 686.20 and were up by 3.16 per cent versus the previous day closing price. Stock 52 weeks High and Low are GBX 1,570.00/GBX 410.00.

From the technical standpoint, its shares were trading well below its long-term support level of 200-day simple moving average prices, which reflects a downtrend in the stock. The RSI (14) is moving downwards from the top.

Valuation Methodology


Risk Assessments
Macroeconomic and geopolitical factors could also affect the performance of the company. Environment and sustainability issues could affect the revenue and profitability of the company.

Conclusion
Recent Coronavirus outbreak had impacted the growth of the Company, and further pressure on its revenue and profitability could be seen in the near term. The Group expects its LBT (loss before tax) to be in between GBP 360 million to GBP 380 million for H1 FY2020. The Company has delivered a decent increase in revenue during the first half of the financial year 2020. EZJ has launched easyJet holidays successfully in the first quarter of the financial year 2020, which could benefit the growth of the company.

Based on the above rationale and risks associated, we recommend investors to keep a “Watch” on the stock at the current price of GBX 702.40 (as on 27th May 2020, before the market close at 8:06 AM GMT+1), with support from few catalysts needs to be evaluated at a later stage.
 
 
*All forecasted figures and Peers information has been taken from Refinitiv, Thomson Reuters.
*The “Buy” recommendation is valid for the current price as covered in the report (as on 27th May 2020).

Disclaimer

PLEASE BE ADVISED THAT YOUR CONTINUED USE OF THIS SITE OR THE INFORMATION PROVIDED HEREIN SHALL INDICATE YOUR CONSENT AND AGREEMENT TO THESE TERMS.
References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.
This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332.
The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. Kalkine is not responsible for material posted on this website and does not guarantee the content, accuracy, or use of the content in this site. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated.
Kalkine do not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not in any way endorse or recommend individuals, products or services that may be discussed on this site. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional licensed financial planner and adviser.