TUI AG

TUI AG (LON: TUI) is a FTSE 250 index listed integrated tourism Company previously known as Preussag AG and is headquartered in Hanover, Germany. The Company, along with its subsidiaries, provides a range of tourism services such as hotels and resorts, tour operations, airlines and cruise liners.

Investment Rationale– Expensive at GBX 442.30

• The global tourism industry has been suffering from the travel restrictions as well as muted travel demand from customers for over a year due to Covid pandemic. Even though vaccinations are going on, situations are not going to drastically improve in the near future.
• The Company has to rely on support packages to raise liquidity.
• The Company’s summer 2021 bookings are down as compared to summer 2019 bookings.
• Due to significant uncertainties related to further development of the pandemic, the Company management could not offer a guidance for FY2021.
• The stock is trading near its 52-week high of GBX 470.97.

Key Risks

• Reputational risk could arise from cancellations and postponements of travel and tourism services.
• The tourism industry is highly competitive. To remain relevant, a Company has to always keep extra focus on what the customers want.
• Travel and tourism companies have high fixed costs. Due to this, lower revenues lead to net losses.
• Regulations and government policies and any changes to them could affect the overall business of the Company.
• Given the Company’s global operations, the foreign exchange fluctuations could impact the financial performance.

Recent News

Director Declaration: The integrated tourism Company, TUI AG on April 30, 2021, announced the departure of Mrs. Ingrid-Helen Arnold, a member of the Company's Supervisory Board effective May 1, 2021.

New Convertible Bonds Offering: TUI AG on April 9, 2021, announced that it would issue senior unsecured convertible bonds to raise ~€350 million with the option to increase the issuance volume to €400 million.

Financial Highlights (for the three months ended 31 December 2020 (Q1 FY2021), as on 9 February 2021)

  (Source: Company Website)

• Due to travel restrictions, lower consumer confidence and lower household disposable income, the Company is experiencing muted operations. Due to that, its top line shrank ~87.8% YoY in Q1 FY2021 to €468.1 million.
• However, strong cost discipline limited the underlying EBIT loss to €720.9 million. The Company is undertaking Global Realignment Programme to target cost savings.
• To maintain liquidity, the Company is relying on support packages. It completed the third support package on 2 December 2020 amounting to €1.8 billion.
• The Company is not offering any dividends to its shareholders.

One Year Share Price Chart

(Source: Refinitiv, Thomson Reuters)

Conclusion

The Company had a significant decline in both top line and bottom line during Q1 FY2021. Future bookings are significantly down as compared to bookings during similar periods pre-Covid. The tourism industry’s recovery will be slow as new Covid variants are enforcing fresh travel bans. Travel experts are not expecting the industry to pick up operations to the pre-Covid levels before 2023. The company is trading near its 52-week high, raising doubts on its upside potential from current prices.  The stock made a 52-week low and high of GBX 152.24 and GBX 470.97, respectively.

Based on the above factors, we have given an “Expensive” recommendation on TUI AG at the current market price of GBX 442.30 (as on 4 May 2021 at 1.30 PM GMT), while we would monitor the situation as consumer demand picks up gradually and revisit our stance accordingly.

Disclaimer

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. Kalkine Limited is authorised and regulated by the Financial Conduct Authority under reference number 579414.

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. 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 does not intend to exclude any liability which it is not permitted to exclude under applicable law or regulation.

Kalkine does 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 intend to exclude any liability which it is not permitted to exclude under applicable law or regulation. Kalkine’s non-personalised advice does not in any way endorse or recommend individuals, investment products or services for your personal financial situation. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional authorised financial planner and adviser. You should be aware that the value of any investment and the income from it can go down as well as up and you may not get back the amount invested.