Dart Group PLC

Dart Group Plc (DTG) is a British AIM-listed aviation and distribution company, headquartered in Leeds, United Kingdom. The company’s operations are differentiated in two operating segments: Leisure Travel, which includes Jet2.com and Jet2holidays, and Distribution & Logistics, which includes Fowler Welch.

Trading Update (as on 11^th October 2019)
Both the company’s Flight-Only offering, and Package Holiday products have witnessed strengthening demand. The company has benefitted with Thomas Cook Group Plc entering into compulsory liquidation in late September, and the company will be accessing its further impact on its business in the coming months. The Board will provide a further update on its results for six months ending 30 September 2019 on 21 November 2019, and it is expected that profit before foreign exchange revaluations and taxation for the year to exceed the estimates.

Financial Highlights (for the financial year ending 31st March 2019, £million)
 
(Source: Annual Report, Company Website)

For the financial year ending 31st March 2019, the group revenue increased by 32 per cent to £3,143.1 million, driven by Leisure Travel revenue which increased by 34 per cent to £2,964.4 million. The operating profit for the year increased by 61 per cent to £203.4 million despite increased losses in the second half as the company continued to invest in additional aircraft and marketing initiatives. The company achieved a statutory profit before taxation for the year of £177.5 million while profit before FX revaluation and taxation was £180.1 million, an increase of 63 per cent. Basic EPS accelerated by 36 per cent to 97.98 pence and the group recommended a final dividend of 7.4 pence per share. EBITDA expanded by 42 per cent to £337.2 million and net cash inflow from operating activities stood at £440.9 million.

Share Price Performance

Daily Chart as at October-14-19, before the market closed (Source: Thomson Reuters)

On 14th October 2019, Dart Group PLC shares were trading at GBX 1,090 at the time of writing before the market close (at 8:40 AM GMT) and remained the same against the previous day closing price. Stock's 52 weeks High and Low are GBX 1,112/GBX 675.60. The company’s stock beta stood at negative 0.32, reflecting the negative movement of the stock as compared to the benchmark index.

Valuation Methodology


Key Risks
The group could be impacted by competitor activity in each business area. While the company believe that the United Kingdom customers regard their summer holiday as an essential element of the annual household budget, ultimately, economic conditions may have an impact on the level of demand for the Group’s leisure travel services. Brexit risk signifies the potential impact of the United Kingdom’s decision to leave the European Union on the company’s operations and financial position. Some additional risks which will retard the company’s financial performance are credit risk, liquidity risk, foreign currency risk, aviation fuel risk, carbon price risk, and interest rate risk.

Conclusion
The Leisure Travel business operates in competition with tour operators, online travel agents and low-cost airlines and changes to market capacity and pricing can have an adverse financial impact. From the perspective of the travel industry market, the company is facing cost pressures in relation to carbon, fuel, and other operating charges which, together with the necessary continued investment in the operations and products, including that required to retain and attract colleagues, are the major headwinds that the enterprise faces.

The company must resort to an increased level of price discounting to achieve the planned growth in customer volumes amid more uncertain consumer environment in the second half of the year and delay in booking by less confident consumers.The company is facing emerging headwinds and cost pressures. Currently, the stock is trading near the 52-week high, suggesting that the upside potential might be limited, and the company can face stiff resistance at the current level.

Based on the above rationale and support from valuation done using the above method, we have given a “Sell” recommendation at the closing price of GBX 1,090 (as on 11th October 2019) based on 11.9x NTM Price/Earnings (approx.) on FY20E earnings per share (approx.).

TUI AG

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

Pre-Close Trading Update (as on 24^th September 2019)
The company is entering its close period ahead of reporting its full-year results for the 12 months ending 30th September 2019 on 12th December 2019. In Hotels & Resorts segments, the diversified portfolio of destinations persists in providing balanced results with demand shifting from Western to Eastern Mediterranean. By the end of 2020, the company will build up the TUI Blue brand from 10 to ~100 hotels, with the repositioning of current hotels within the portfolio in Hotels & Resorts. In Cruises segment, the company successfully introduced the new TUI Cruises Mein Schiff 2, Marella Explorer 2 and Hanseatic nature for HapagLloyd Cruises, with the higher occupancy levels and strong daily rates. In Destination Experiences segment, the company anticipate seeing robust client progress in the final quarter, due to both underlying progress and the acquisitions of Destination Management and Musement.d

Financial Highlights (9M FY2019, €million)

(Source: Quarterly Presentation, Company Website)

Despite an increase in turnover to €11,421.4m from €11,142.6m in 9M FY 2018, seasonal underlying EBITA loss increased to €199.7m (9M 2018: €17.1m profit), while reported EBITA loss increased by €235.2 million to €262.6m. Underlying EBITDA declined from a profit of €312.5m in 9M FY 2018 to a profit of €141.8m in 9M FY19. Net loss for the period surged by €134.6 million to €240.4m.

Share Price Performance

Daily Chart as at October-14-19, before the market closed (Source: Thomson Reuters)

On 14th October 2019, TUI AG shares were trading at GBX 994 at the time of writing before the market close (at 10:30 AM GMT), down by 1.09% against the previous day closing price. Stock's 52 weeks High and Low are GBX 1,394.50/GBX 686.60. The company’s stock beta stood at 0.88, reflecting the lower movement of the stock as compared to the benchmark index.

Valuation Methodology


Conclusion
The company is currently assessing the short-term impact of Thomas Cook’s insolvency under the existing circumstances, on the final week of the FY19 financial result. Even in the challenging market environment, the vertically unified division model proves to be resilient. The Markets & Airlines segment faces several continuing external challenges such as the airline overcapacities, continued Brexit uncertainty and the grounding of the 737 MAX aircraft. Therefore, the company reiterated the financial year 2019 underlying EBITA guidance of up to minus 26 per cent against the previous year. Some external challenges will persist in the financial year 2020 – therefore, the company will mainly focus on becoming extra cost-competitive in the Markets & Airlines segment to extend and protect the market share as possible.
As the company operates in multiple geographies, its profits can be impacted negatively due to foreign exchange rate fluctuations. Currently, the stock is trading near the 52-week mid, suggesting that the upside potential might be limited, and the company can face stiff resistance at the current level.

Based on the above rationale and support from valuation done using the above method, we have given a “Sell” recommendation at the closing price of GBX 1,005 (as on 11th October 2019) based on 6.5x NTM Price/Cash Flow (approx.) on FY19E cash flow per share (approx.).
 
 
*The “Sell” recommendation is valid for the current price as covered in the report (as on 14^th October 2019).
*All forecasted figures and Peer information have been taken from Thomson Reuters.
*In Valuation Methodology, currency exchange rate taken for 1 EUR = 0.879356 GBP.

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