9th Aug 2023 10:17
(Alliance News) - Tui AG on Wednesday reported its first profitable third quarter since the pandemic amid strong travel demand.
Despite the good news, analysts warned that the holiday operator must "fix the roof while the sun shines" amid "eye-watering" levels of debt.
Tui said pretax profit in the three months ended June 30 totalled EUR47.0 million, swung from a loss of EUR161.6 million a year prior. Revenue in the quarter grew 19% to EUR5.29 billion from EUR.4.43 billion, driven by more people going on holidays.
Cost of sales increased 16% to EUR5.02 billion from EUR4.31 billion, while administrative expenses were 34% higher at EUR253.1 million compared to EUR189.6 million.
AJ Bell Investment Director Russ Mould said there were "continuing signs" of consumers prioritising a "week on the beach" in spite of their "dwindling" disposable income but questioned how long this can be sustained as household budgets face continuing strain.
"The company has taken steps to repair a balance sheet which took severe damage during the pandemic but it is still sitting on lots of debt. It doesn't want to be left exposed if the post-Covid boom in travel demand starts to ebb away.
"Tui really needs to ensure it fixes the roof while the sun shines," Mould said.
Looking ahead, the company reiterated its expectations for a "strong summer", with bookings totalling 12.5 million square metres for the season, up 6% annually from summer 2022. Bookings are close to pre-pandemic levels at 95%, compared to 90% a year ago.
Aarin Chiekrie, equity analyst at Hargreaves Lansdown, noted that as Tui doesn't just run flights, having a much wider package holiday business, it is in some ways "more defensive" as there's "more to offer and plenty of cross-selling opportunities".
However, Chiekrie added there are "drains on cash" when a firm has planes, huge hotels and even cruise ships to fill. As a result, the HL analyst said returning to pre-pandemic levels would be "key" for Tui, noting that "good progress" is already being made on this front.
Like AJ Bell's Mould, however, Chiekrie expressed concern with Tui's "eye-watering" debt level and said that dividends are "likely off the table for now" while Tui grapples with the still substantial pile.
As at June 30, Tui's net debt stood at EUR2.2 billion, narrowed from EUR3.3 billion the year prior.
Shares in Tui were down 0.2% at 580.50 pence on Wednesday morning in London.
By Heather Rydings, Alliance News senior economics reporter
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