Tui tanks as it cuts earnings outlook
Tui shares tanked on Thursday after the tour operator cut its earnings outlook due to warm weather and the weak pound.
Tui AG
€6.73
20:09 06/05/24
The company said it now expects underlying earnings before interest, taxes and amortisation for the fiscal year ending 30 September 2019 to be broadly stable compared to the record year in FY18, when it came in at €1.18bn.
In addition, Tui said it was not reiterating its guidance of at least 10% compound annual growth rate underlying EBITA at constant currency for the three years to FY20.
Tui highlighted the negative impact from the "extraordinary" hot weather in 2018, which resulted in later bookings and weaker Markets & Airlines margins. It also pointed to a shift in demand from the Western to Eastern Mediterranean, which has created overcapacities in certain destinations such as the Canaries, also resulting in lower margins for Markets & Airlines.
Finally, the group said continued weakness in the pound made it difficult to improve margins on holidays sold to UK customers.
"Previously, it was anticipated that these headwinds would impact primarily H1 (winter), however we are seeing from current bookings an additional impact on H2 (summer), and have updated our guidance accordingly," it said.
At 0850 GMT, the shares were down 15% to 1,007.50p.
Shore Capital analyst Greg Johnson said: "At last night's close of 1,184p Tui trades on a 2019F price-to-earnings ratio of 11x and a yield of 5.3%. Our investment case over the last two years has been that a higher quality business is emerging given the growth in higher margin, earlier booking profile and asset backed cruise and hotel.
"Although the downgrade to growth expectations highlights the volatility in the industry we believe the underlying thesis remains unchanged with holiday experiences set to increase to 70% in FY2020 (adjusted for overheads) against just 40% back in 2015. We estimate that circa €1 per share is now generated from these higher quality assets with just €0.2 from the traditional tour operating segment. Applying a 12-14x multiple suggests circa a£10 to £12 per share can be attributed to this income stream alone. Although disappointing to see earnings estimates come down we reiterate our buy stance."