Deutsche Bank
Research
27 July 2023
Strong operating trend to be confirmed for Q3
A booming summer still expected
On 9 August, TUI will publish its Q3 revenues. We expect the group to deliver a solid
operating trend, with Q3 delivering revenues of c.€5.1bn, up 15.2% vs. Q3'22 (and
7.6% higher than in Q3'19). The underlying EBIT margin is expected to reach c.3%
(€155m) vs. -€27m in Q3'22. No consensus is available at this stage.
Q4 could remain strong
The company should confirm a booming Q4 trend. As a reminder, H2 represents
c.75% of annual FCF, with Q4 being especially contributive.
Current fires in southern Europe (Spain, Portugal and especially Rhodes, Corfou and
Elbe in Greece) could be seen as a real risk to TUI's annual results. At this stage, we
believe that TUI continues to benefit from a solid operating trend, despite necessary
evacuations (especially from Rhodes).
Deutsche Bank views and valuations
On 5 June, we upgraded our recommendation from Hold to Buy, and the stock has
gained 10.3% since then, with the Stoxx 600 up by only 3.4% and the Stoxx T&L
down 20.9%.
TUI shares continue to trade at attractive multiples (3.2x 2024e EV/EBIT and 5.2x
2024e P/E), a >50% discount compared to TUI's historical multiples in 2015-19.
We keep our expectations unchanged (more or less in line with consensus). Our
target prices (843p and €9.80) are still based on DCF & SOTP methodologies,
offering significant upside potential (c.+44%); maintaining Buy.
Risks
Downside risks include: 1) a weaker recovery in travel, 2) demand being potentially
more sensitive to higher prices than initially expected, 3) negative working capital
evolution affecting FCF, 4) negative FX moves and 5) potential climatic issues (fires,
hurricanes, etc.).
Q3 preview
On 9 August, TUI will publish its Q3 revenues. We expect the group to deliver a solid
operating trend, although the base effect will become less favourable the following
quarter. Nevertheless, we expect the company to deliver revenues of c.€5.1bn in
Q3, up 15.2% vs. Q3'22 (and 7.6% higher than in Q3'19). In the meantime, TUI's
underlying EBIT margin is expected to reach c.3% (€155m) vs. -€27m in Q3'22. No
consensus is available at this stage.
Annual expectations unchanged; concerns over fires in southern Europe
We expect the company to confirm a booming Q4 trend. As a reminder, H2
represents c.75% of TUI's annual FCF, with Q4 being especially contributive.
Current fires in southern Europe (Spain, Portugal and especially Rhodes, Corfou and
Elbe in Greece) could be seen as a real risk to TUI's annual results. At this stage, we
believe that TUI continues to benefit from a solid operating trend, despite some
necessary evacuations (especially from Rhodes).
It is too early to be able to quantify the potential impact, but the group indicated that
39,000 TUI tourists were in Rhodes this week (currently representing slightly more
than 4% of the total number of TUI's clients), with 8,000 being affected by the fires
(c.1% of the total number of TUI's clients, according to our calculations). For these
clients, TUI offered relocation, transfers to other destinations and/or return flights
for those who wanted to relocate/transfer/return. In the meantime, TUI has stopped
bringing new tourists to Rhodes this week.
At this stage, two months before the end of the fiscal year, a large majority of
tourists have either already traveled or are still planing to travel. Although some fires
are still burning or even starting (a new fire started on Corsica today), August and
September are still expected to be booming almost everywhere. Therefore, we keep
our expectations unchanged (more or less in line with the consensus forecast).
Valuation and recommendation
On 5 June, we upgraded our recommendation from Hold to Buy, and the stock has
gained 10.3% since then, with the Stoxx 600 up by just 3.4% and the Stoxx T&L
down 20.9%. TUI shares continue to trade at attractive multiples (3.2x 2024e EV/
EBIT and 5.2x 2024e P/E), a >50% discount compared to average historical levels
between 2015 and 2019.
We keep our expectations unchanged (more or less in line with consensus). Our
target prices (843p and €9.80) are still based on DCF & SOTP methodologies,
offering significant upside potential (c.+44%). We maintain our Buy rating. |
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