TUI reported full-year revenue of €23.2bn, up 11% ignoring currency impacts, and ahead of market expectations. Performance was driven by higher selling prices and a slight increase in occupancy rates.
Underlying operating profit rose 35% to €1.3bn (guidance: >25%). All divisions contributed positively, with the biggest uplift coming from its Cruises and Hotels & Resorts segments, which delivered record results.
Underlying free cash flow improved from €140mn to €382mn. Net debt came down by €0.5bn to €1.6bn.
In the new year, revenue is expected to grow by 5-10% (consensus: 2%) and underlying operating profits are expected to rise between 7-10% (consensus: 9%).
The shares fell 6.9% in early trading.
Our view
TUI’s had a blockbuster year, with strong operational performance helping underlying operating profits soar 35% higher. But the shares fell on the day, likely due to profit guidance for the new year being softer than markets had hoped for.
TUI operates a diverse travel business, owning an airline, cruise ships, hotels, and resorts, and serves over 20 million customers across more than 180 destinations. Despite broader economic pressures, consumers have been prioritising travel, enabling TUI to raise prices while filling more rooms and cruise cabins. This combination of higher prices and fewer empty spaces has boosted efficiency and profitability.
Positive booking momentum has continued into the new year too, as has progress on selling prices. That’s also been the case for the Airline segment, with nearly two-thirds of winter seats already sold. More than 95% of fuel and currency exposure has already been hedged, meaning there should be little in the way of surprises in the near future.
In some ways, having a wide package holiday business makes it more defensive - there's more to offer and plenty of cross-selling opportunities. But the drains on cash when you have planes, huge hotels and even cruise ships to fill are enormous, so occupancy rates creeping higher across the business comes as welcome news.
Debt levels have been a concern in the past, but the group has done a good job of getting them under control. Net debt as a proportion of cash profits is now at a level we’re comfortable with. Continued movement on this front will be key to any potential return of dividends, which are never guaranteed. Bear in mind now that the shares are no longer listed in London, any dividend income may now be subject to withholding tax.
We can't knock progress but remain wary of some wider risks. Rising tensions in the Middle East and the Suez Canal have the potential to disrupt business and put some customers off travelling. This is largely outside of TUI’s control and can make it difficult to map demand accurately.
The valuation sits well below its long-run average, which we view as undemanding if the expected improvements in profitability are to be taken at face value. Its diverse offering and low valuation offer both upside potential and some downside protection, making it one of our preferred names in the sector. But the cyclical nature of the industry, as well as the sensitivity of demand to macro-events, means there are likely to be more ups and downs ahead.
The author holds shares in TUI.
Environmental, social and governance (ESG) risk
The transport industry is medium risk in terms of ESG, with European firms managing them better than others. Carbon emissions, product governance, and quality & safety are the biggest risk drivers. Other key areas are emissions, effluents & waste, labour relations, and employee health & safety.
According to Sustainalytics, TUI’s management of ESG risk is average.
TUI has a very strong whistleblower programme and has appointed board-level responsibility for overseeing ESG issues. However, ESG disclosures fall short of best practice, and there is no reference to linking executive pay to ESG targets.
TUI key facts
All ratios are sourced from Refinitiv, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
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