Backed by summer hopes

TUI delivered a consensus-beating top-line but a higher-than-expected underlying EBIT loss in the year-end quarter. The market nonetheless reacted positively thanks to the buoyant up-to-date booking trends despite the inflationary concerns. We may need to cut our estimates as the recovery seems less rapid than had been expected.

Discreet mid-term forecast and planned recap despite surprising FY22

Despite the consensus-breaking FY22 results and encouraging FY23 outlook, TUI’s mid-term ambitions look prudent compared to the market expectations. The share reaction was further negatively impacted by the dilution effect from the €1.6-1.8bn rights issue plan, which was set to support the exposure reduction to the German state rescue measures. We expect a decrease in the consensus and our target price.

A recap planned to support the WSF repayment agreement

TUI has reached agreement with the German WSF to fully repay the pandemic-related stabilization measures with a €479m nominal value of c.€730m and the price could increase to as much as €957m, subject to market conditions. A rights issue of €1.6-1.8bn (c.50-60% of TUI’s current market cap) is planned for early 2023 to support the WSF repayment, following the implementation of a capital reduction. The recap will also be used to partially redeem the remaining KfW credit lines of €2.1bn.

Uncertainties cloud the summer trading outcome

Despite a promising summer outlook, TUI’s trading update did not convince the market due to a high level of uncertainties related to airport chaos, geopolitics and inflation, etc. The financial guidance remains vague for the same reason and its balance sheet still needs meaningful strengthening. We expect a downgrade in the FY22 consensus but no major changes to our current estimates.

Summer is finally here (soon)

The market cheered TUI’s consensus-beating H1 results, improving the net debt position and accompanied by upbeat FY guidance. The favourable market conditions and the group’s strong pricing power should support sparkling summer trading and allow for a further strengthening of the balance sheet, although the only-limited fuel hedging could neutralize part of this expected vitality.

Mixed summer outlook

TUI’s Q1 results missed the consensus again while its liquidity and net debt positions remained comfortable. The current trading of summer bookings is mixed as the average prices remain buoyant but the booking volumes have slowed. Regardless, the target of summer bookings volume is maintained, due to later booking profiles and rising consumer confidence. The group’s plan to repay part of the state aid and to reach 90% of its permanent cost reduction by FY22 should be considered as positive.

Wait and...continue to wait

TUI’s FY21 results came in below consensus and no meaningful short-term catalysts were seen. The group may have to trim further its winter schedule due to the new Omicron variant, which has already weighed on recent bookings. The summer 2022 bookings seem encouraging but visibility remains limited in effect.

Taps investors for €1.1bn

TUI launched a €1.1bn share placing to reduce financial interest expenses and improve its debt profile. The recapitalisation is necessary, which should not surprise the market, and will supportively strengthen TUI’s vulnerable balance sheet. Due to a larger-than-expected dilution effect, we will have a lower target price after integrating this capital increase.

Summer hopes are still for sale

TUI’s Q3 results update was encouraging, due to a meaningful business restoration, improved cash generation and promising summer outlook, despite a narrowed Q4 capacity schedule. However, a plan of the critical balance sheet repairment is still missing.

Narrowed FY revenue forecast despite summer hopes

TUI’s H1 results release frustrated the market today, due to its downward-adjusted FY revenue guidance and mediocre cash burn rate, despite the prospect of a bright summer recovery. Consensus might go down.

Not convinced by TUI’s sparkling summer hopes

TUI delivered a weak Q1 as expected, with an unexpectedly improved cash burn rate, but the latter should be considered as a one-off item since no improvement has been included in the guidance. The group’s current liquidity position should be adequate at least until the summer, while its heavy leverage is a concern instead. It continues betting on a summer recovery, whereas we still consider the near-term market conditions as highly uncertain.

Enough cash to burn before the hopefully rosy summer arrives

TUI’s FY20 results disappointed the market, with a further trimmed business assumption for FY21. It doesn’t expect a return to profitable growth until FY22.

TUI reaches an additional financing package of €1.8bn

The additional financing package would allow TUI to last until next summer, when a constructive business resumption is expected to be seen.

IP Group - Several potential portfolio catalysts on the horizon

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The focus of Hardman & Co Research is on the nine quoted Infrastructure Investment Companies (IICs) and on the 22 Renewable Energy Infrastructure Funds (REIFs): the stocks analysed are all members of the Association of Investment Companies (AIC). We are updating our publication of January 2023, assessing both the lacklustre share price performances during 2023 and the key issues, including interest rates, inflation and power prices. As a 31-strong group, its combined market capitalisation is no

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The Hardman & Co Monthly: April 2024

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Morning Note – 9 April 2024

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