Trip to the stock doom: My opinion on the TUI share
Hello folks!
Today is going to be about my opinion on TUI stock. I think all of you have heard of it before and due to the strong response to TUI in my last survey, I decided to take a closer look at this stock for you today.
First of all the DisclaimerThis is not investment advice. It is also not an invitation to buy / sell financial products. I describe here only my opinion. You have your own responsibility towards your investments. No liability.
So that we all start from the same page, I divide this analysis into the following steps:
1.TUI in facts, figures and data.
1.1 Who is TUI and what is the importance of the vacation industry?
1.2 Analysis of the TUI share - A share to burn in the fireplace?
2.personal conclusion and outlook for further topics
1.TUI in figures, data and facts
1.1 Who is TUI and what is the current significance of the vacation industry?
The TUI AG with a stock market valuation of 2.917 billion euros, is one of the companies in the European region that is considered a pioneer in the vacation industry and has an immense sector significance. Each of us is familiar with TUI as a provider of diverse travel services and in many travel agencies you can see the typical TUI smile on some of the offers. 28 million customers worldwide, 75% of them in Europe and 15 cruise ships with 5 airlines and about 5,000 travel agencies are a strong statement (cf. (1), (2), (8)).
It is important to note that, unlike McDonald's, TUI's sales are mainly generated by its well-known core business. 97.6% of sales can easily be assigned to the category of services in the tourism sector. (cf. (1), (2)).
This is interesting in that there is a clear linkage of the company to prominent business areas - one is tempted to think this is terse. Only 2.4% of sales are derived from activities in other business areas. McDonalds in comparison is less dependent on prominent day-to-day business and operates a less dependent model via real estate and franchisees and has income from rentals. So while TUI is at 97.6% core business to 2.4% extraordinary activities with real estate among others, McDonald's operates a 56.4% franchise/partner restaurants to 42.1% group owned restaurants structure (see ibid.).
Where is the connection and why is this important?
To put it bluntly: TUI is almost entirely responsible for its 97.6 percent day-to-day business, while McDonald's can rely on rent and revenue sharing for its majority external sales influences. I would like to mention this here in order to briefly touch on the influence of intra-group activity on the overall economic success of a company. If the core business does not run for TUI, there are direct influences on the overall performance. If McDonald's is not doing well, there is still the rent and the revenue share - however small it may be. The founder of McDonald's Ray Croc also called his company a real estate group in the narrower sense (cf. (3), (4)).
TUI is thus one-dimensional in its business segment. The 97.6% named are essentially divided into (cf. (2)):
- Tour Operators in Central, Western and Northern Region.
- Hotels & Resorts
- TUI Musements
- Cruises
- Other
Yes but it says "Hotels & Resorts" so is TUI a real estate company after all?
Caution: TUI and real estate has become a very hot potato. While TUI owns 400 hotels worldwide, part of that is held by a holding company with 21 properties. The other share is held by the RIU family, in turn together with TUI, with RIU being a major shareholder in TUI (see (9)).
Huh?
It is essentially very simple: In 1993, the Riu family and the TUI Group founded a company to manage the properties. It is the successor of a predecessor of the 50s and is called "RIUSA II S.A". The objective of RIUSA II S.A is the active management and maintenance of the properties owned by TUI (see (5), (6)). In addition, there was a minority shareholding of TUI in a company detached from it with only 21 properties. TUI sold this stake in 2021 and received between €540 million and €670 million for it. The buyers are RIU itself on the one hand and a Dutchman from an Indian entrepreneurial family on the other, which should be enough input for us for now. Thus, TUI's reference to real estate is primarily in the company RIUSA II S.A (see (5), (6), (7)).
What is the purpose of this company?
The RIU family held a majority stake of 51%, while the TUI Group held 49%. In the meantime, both have equal rights with 50%. It is therefore a kind of spin-off of the Group's activities into one company so that it can take care of the real estate. The perspective on real estate is therefore completely different from that of McDonald's and other challenges arise because the hotels do not belong to TUI alone and during the Corona pandemic many hotels were empty or could not be fully used (see (7), (8), (9)).
Why is this problematic?
A hotel without customers is like a car without fuel - it does nothing, ties up capital and requires various payments to be allowed to keep it. TUI also felt this when they realized a loss of 3.1 billion euros in Corona Year 2020. Yes, read correctly. 3.1 BILLION euros. For a company that is valued at 2.917 billion euros in 2022. For this reason, the German government gave TUI three loans with a total volume of 4.3 billion euros so that TUI would not go bankrupt. At that time, 48,330 employees were working for TUI worldwide in 2020, of which 16% were from Germany alone in 2021. It is therefore obvious that TUI as one of the leading companies in this industry with its market significance as well as the high number of employees worldwide plus real estate holdings had to be saved as a German group. Currently, TUI is in a kind of post-Corona phase, but according to (10) from December 2021, it will probably have to rely on price increases in future years (see (10), (11), (12)).
Price increases in times of inflation close to the 10% mark?
It is certainly not an easy time for TUI with its own problems and a disadvantaged market due to many influences. While 739 billion euros were still generated worldwide by the travel industry in 2019, the value in 2020 was 349 billion euros. That is less than half and thus about 47%. With regard to 2022, although a slight recovery is expected, the revenue of the travel industry is still below that of the previous Corona years at 666.19 billion euros (see (13)).
So what? Then things are looking up for TUI, aren't they?
It is difficult to judge. If you look at various stock market articles, you often come across the narrative of "Yes - it doesn't look good for TUI now, but soon Corona could be over and then there will be a general market upturn and maybe for TUI as well. HUSA!" The problem with this idea is that TUI was not without problems in the past either and was definitely confronted here and there with new trends that disrupted the core business.
What kind of trends?
It is not explicitly mentioned in the source for (13), but the side sentence on the growing importance of online bookings in the Netherlands makes me aware of a fundamental problem for TUI. In 2021, almost a quarter of Dutch respondents in a survey said that they had made a booking via the Internet.
Wow. Big Deal.
Yes it is, because I didn't tell the whole truth. I repeat: This quarter of Dutch respondents in this study reported booking travel services via the Internet - IN THE LAST THREE MONTHS BEFORE THE STUDY WAS SURVEYED. WITH PANDEMIC STILL VERY ACTIVE. Despite the possibility of video telephony with travel agencies (see (13)). If one analyzes the reasons transversely to this and looks at the structural distribution of this opinion, a further knee shot for TUI becomes apparent: 70% of the interviewees from the young age group 16-29 years bought individual vacation services via the Internet and NOT exclusively in the travel agency. From my point of view, it would have been interesting to ask whether this included all activities and special services or at least individual items were purchased at the travel agency. Positive for TUI: The higher the age of the respondents, the fewer online bookings of vacations and special services were made. The proportion of online bookings is consequently reduced to 22% for the over 64s - thus structurally a gradual disruption of buyer behavior is taking place, as the central point of contact in the form of the travel agency is no longer the main point of travel booking for everyone (cf. (13)).
Do you mind the Internet? Why does it itch?
It itches massively - if I operate over 5,000 travel agencies as a corporation - that means: personnel, electrics, heat, overtime compensation, etc. I expect a certain return per travel agency. I want to be able to see when I have recouped my invested capital via the travel agency. However, if my customers book with the competition and I have no personal access to my customers, there are 2 incremental disadvantages:
I can't judge whether the trip really suits the people. This may result in a trip being booked that has a bad effect on my image in the medium to long term when it is discovered on site that the travel package is zero. One stands as operator and/or executive then also usually not in the possibility of the intervention, since well-known comparison portals for journeys offer explicit customer service locally.
Useful additional services (romantic dinner, jet ski tour, cave tour, etc.) may not be noted, or the credit does not go to the travel agency despite the operator. So there is no customer loyalty for me as an operator.
I am aware that these two points are well arguable. Therefore, I pull it away from my opinion back to the number level. That is quite demanding, because I would like to represent, what one has for a hotel ON OPERATOR SIGHT as costs and with which TUI is presumably concerned.
For this reason I construct in the following an Invest-return concept using the hotel industry as an example.. To start with, we assume that we are only looking at one hotel of the TUI chain.
Given the high quality standard of TUI hotels, most of which have high star ratings and often offer all-you-can-eat buffets, we will make the following assumptions:
- The hotel has AT LEAST 3 stars
- The hotel is close to a tourist hotspot
- There are as few diffuse factors as possible
- It is not a bed & breakfast, but includes necessary personal services
- We start with a fixed hotel - new would require a series of posts :)
- It is a hotel in the Canary Islands, Fuerteventura with moderate seasonal influence
Based on the parameters, the hotel Riu Palace Jandia is the obvious choice. Before complaining now: No I don't get a cent from RIU or TUI for naming a hotel here. On the basis of (14), (15), (16) and also (17) we learn that the hotel has three floors and 201 guest rooms. This also includes a swimming pool of about 300 square meters, and the operator also has to pay for air conditioning, SAT TV and WLAN. An average room has 42 square meters and a price of 210€ for one day. For simplification, we assume a vacationer with a weekly stay. This is then calculated with 296€ and an interesting note on the part of Google that the prices are currently high. For simplification, we will use the 276€ that Google still sees in the yellow area for the hotel room (cf. ibid.).
Why is this important?
According to (14), a hotel room is only profitable IF the price recovers one thousandth of its construction costs per night. That can't be that much money for the construction, can it?
Yes it is - in the case of the Adlon Hotel it is 500,000€. Per room. So for the room of Adlon 500€ the night is calculated according to this rule. What is the cost? At the time of this analysis, the lowest price according to (19) is about 485€. So the rule of thumb is not far from the lowest minimum that hoteliers could actually charge (see (19).
What should be applied in the case of the Riu Palace Jandia?
So that this analysis does not go beyond the scope, I calculate backwards from the cheapest price and assume this calculated value as credible within an interval. For the hotel, this results in:
0.0001* x = 276€, where x = construction cost of the room in a high price phase.
It results after conversion:
X1 = 276.000€ construction costs for a hotel room on the Riu Palace Jandia
We make the interval from the mentioned 210€ to 296€. This gives:
X(min) = 210.000€ to X(max) = 296.000€, so (210.000<x<296.000)
What does this value give us?
We can now roughly estimate the construction costs for the hotel at the room level. It's not that hard for a first rough impression.
We calculate X1*201 guest rooms and get: €55.48 million just for the guest rooms and their construction. On top of that we had to add the construction of the pool, the acquisition of staff, the acquisition of licenses to be allowed to build in the area at all and the construction of a parking lot, etc. From this point on we would be break even with the construction costs. For the sake of simplicity, I will not go into how exactly this rule includes other costs.
For personnel costs, let's assume that they are indeed typically between 30% to 50% of the hotel's total revenue, according to my sources. TUI made €200 million in global revenue from all hotels in the first quarter of 2022. Unfortunately, in (20) only cost of sales is presented in a re-balanced way. Therefore, for the time being, it should suffice for us to realize that the following parameters have an influence on the hotel industry and can, with varying intensity, spoil TUI's business.
- High construction costs
- 30% -50% reduction in sales due to personnel
- Absolute dependence on customer demand (no special sales on a large scale)
These two points have been briefly illustrated with figures based on a real hotel using the analysis presented. We have recognized that a high capital investment with personnel costs can be the main driver in the hotel business. Above all, TUI has a massive problem here due to missing customers if the personnel and construction costs cannot be recovered in the time horizon.
If you are really interested in such hotel analyses, I will be happy to make suggestions in the near future.
If we look at the consolidated balance sheet from Dec. 31, 2021 as well as P&L from Q1 2022, it is the shareholders' shares in equity, which at least achieve a positive equity statement through their share in equity. Due to massive retained earnings and very high leasing liabilities, e.g. for company vehicles and buses, of €2.61 billion plus €3.34 billion in financial debt, a level of debt and current liabilities is evident which, with subscribed capital of €1.623 billion, makes one sit up and take notice. Current and non-current liabilities together amount to around €7.944 billion plus €5.566 billion. This is more than the non-current assets of €11.261 billion.
So TUI is probably prominent in many ETFs and of course also in the sector bets or?
For that, let's take a look at the TUI share in the following:
1.2 Analysis of the TUI share - A share to burn in the fireplace?
The TUI share has suffered greatly in accordance with the explanations from 1.1 and has built up significant liabilities via government loans. The market value fell from €6.3 billion to €2.917 billion and the P/E ratio is negative at -30.
What does this mean?
If the market value falls, the company value and thus its book value is also likely to fall. This has happened at TUI, so that a lower book value per share has been reflected to the shareholder. In fact, in 2019, one still received €5.86 per share book value. In 2020 and 2021, these values were negative at -0.76 and about -1 euro. Thus, in a sense, one has received nothing from TUI, but on the contrary has lost money directly through the purchase, had one entered at that time. The price/book ratio was negative in this sequence from -4.27 to -3.81 in 2020 and 2021, respectively, which means that the ratio of the valued price to the book value is negative (see (21)).
With the facts presented, this means that because the book value became negative, the P/B ratio could also only fall below zero. We remember: A CFT of 1 means: 100€ investment for 100€ book value. On the other hand, a negative P/B ratio below zero means that the market does not even grant the company its equity as a value. So this can mean that the market is strongly distrusting the company in general and for me it is a warning sign that something is wrong with the company or the stock. After all, there is value there - but the market may not accept it due to high debt, low confidence in ongoing solvency issues, etc. Basically, from here on, I would leave the stock on the left and only deal with it out of interest (see (20), (21), (22)).
Nevertheless, I will take a brief look at the other parameters for you. If we compare the stock market valuation with sales, the market provides a 0.18-fold ratio for TUI. Without looking at the P/B ratio, etc., this would initially suggest a cheap valuation. Also, the enterprise value compared to sales is 0.42, so that more sales are generated than the company is currently worth according to the stock market. Compared to EBITDA, the valuation is 5.08 times the enterprise value, which is high in my opinion. What does this mean in my opinion (cf. ibid.)?
It means that revenues before taxes, debt, depreciation and amortization are 5.08 times below the enterprise value. This is especially interesting because the number of shares has increased from 589,021 (2019) to 1.1 million approx. (2021) and now to 1.78 million (2022 e). The problem with issuing more shares is basically from my point of view that more availability can imply lower share valuation if necessary. Although the company is mathematically correct in issuing more shares at a similar proportional price, it ultimately has the problem of diluting its own share landscape (cf. ibid., (23)).
Huh?
Company gets money via new shareholders and possibly cheaper entry price. Good. Company may lose confidence in the market and has to buy more shares to stabilize the share price. Profit distributed among more shares. Profit diluted. Dubious. Company less money, not good (cf. (23)).
In particular, the earnings trend is exemplary and represents a relatively well-drawn V in 2019 to 2022. Operating profit fell massively, net margins due to unused hotels, unproductive staff, etc. fell into the bottomless pit and with the little revenue could hardly be earned anymore if at all due to "Corona- pricing". From 2022 to 2024, a more or less stable course is expected again, but a look at the return on sales of 2.63% in 2022 (!) and 5.88% only in 2024 reveals that shareholders might need a lot of staying power to achieve a result with returns below those of well-known companies such as BAT, Intel, etc. (see 1.1, (2), BAT video).
Who needs a short break after these numbers, where there is also something more positive to say, is welcome to turn on my video on Intel or BAT and light this fire of the stock market a bit. Also no perfect corporations, but at least the situation is mMn less unfortunate:
BAT video: https://www.youtube.com/watch?v=RkrJDHcF7MI&t=76s
Intel video: https://www.youtube.com/watch?v=qDd-Nkqy1dU&t=6s
We continue with a look at revenue. According to the analysts, the pre-crisis level of 2019 will not be reached again until 2024, when 19.057 million euros in revenue will be generated. Great. We will then have virtually the same situation again in terms of revenue, but an immense mountain of debt as presented and a reeling industry. Could a dividend to be paid perhaps smooth our waters (see (2))?
Jain - and although I am a dividend investor on Getquin primarily, I do not wish the analysts' assessment. According to them, TUI will pay out THREE cents a share in 2024 from a share profit of 26 - I repeat: A WHOLE 26 cents a share. Really. 3 cents is expected. I take a critical view of this from various backgrounds, and anyone who reads my writing to any degree knows that I only like dividends from reasonably secure companies. I find this eternal "Yes, in 2019 we paid 54 cents with a payout ratio of 76.06%, so in 2024 we'll just bang out 11.54% of our share profit to probably regain investor confidence" hard to digest in light of the comments made about the P&L, balance sheet and general market environment (see 1.1, (2), (22)).
Anyway, TUI's dividend represented a stable upward curve only from 2014 to 2019 and has been cut from 72 cents to 54 cents in 2020. If one opens (24) and selects only revenues and percentage change per share, one sees a clear downward trend, which a) shows a non-proportional growth mode to the share price and secondly a clear trend towards unaffordability of the dividend in the foreseeable years. This is merely my opinion and does not claim to be correct.
2. conclusion
Finally, I resolve the question which important ETFs exist in the travel sector and whether they see TUI in a key position. According to (25), none of the best known sector ETFS like the Ishares STOXX Europe 600 Travel & Leisure or one of its consorts do. Instead, we frequently encounter Royal Carribean and Vici Properties. Hilton Worldwide is also seen, as is Delta Air Lines.
If any of the companies interest you, I'd love to hear your feedback!
What do I think of TUI in the end? Well, I am quite curious to see how this so important group will save itself from the problems presented. But I will not make an investment for myself at first. You may see it differently, and I am only expressing my opinion here.
So I am happy about your feedback!
P.S.: I am currently thinking of a podcast. Feel free to tell me if you would like to listen to it. If it works, I would also talk with guests here from Getquin about different topics around dividends etc.. It's not a promotional question, but serious request for opinions. Thanks a lot and take care of yourselves.
Your Bass-T
#aktien
#aktienanalyse
#tui
#dividende
#dividenden
#reisebranche
#geld
#aktie
Sources
(1) https://de.marketscreener.com/kurs/aktie/TUI-AG-470539/
(2) https://de.marketscreener.com/kurs/aktie/TUI-AG-470539/unternehmen/
(3) https://de.marketscreener.com/kurs/aktie/MCDONALD-S-CORPORATION-4833/
(4) https://www.sharedeals.de/mcdonalds-der-wohl-weltgroesste-immobilienkonzern/#gref
(5) https://finanzwissen.de/aktien/tui-aktie/
(8) https://www.presseportal.de/pm/44027/4982214
(11) https://de.statista.com/statistik/daten/studie/246229/umfrage/anzahl-der-mitarbeiter-von-tui/
(13) https://de.statista.com/themen/3045/online-reisemarkt/#topicOverview
(14) https://www.welt.de/print-wams/article101030/Was-kostet-ein-Hotel.html
(15) https://hoteltechreport.com/de/news/how-to-start-hotel-business
(16)https://www.google.com/travel/hotels/s/y66JGDQMnu7KduTAA
(17) https://www.riu.com/blog/de/wann-reisen-fuerteventura-riu/
(19) https://www.kayak.de/Berlin-Hotels-Hotel-Adlon-Kempinski.14010.ksp
(21) https://www.alpha-star-aktienfonds.de/blog/aktienbewertung/kbv/
(22) https://aktienfinder.net/dividenden-profil/TUI-Dividende
(23) https://www.tagesschau.de/wirtschaft/unternehmen/tui-staatshilfe-rueckzahlung-101.html