Shares in TUI AG, the German tour operating company that has its main listing in London, have continued their downward drift despite some good news recently.
Shares in the company that has interests in 16 cruise liners that operate under the Mein Schiff, Hapag-Lloyd Kreuzfahrten and Marella Cruises brands, traded at £5.10 at mid-morning on 27 April. They had hit an all time high of £20.30 in May 2018.
However, the fall in the price has effectively been much deeper, because on 23 February, TUI completed a consolidation of its shares whereby 10 old shares were exchanged for one new share. Taking this into account, shares in the company would only be worth £0.51 today. In other words, on like-for-like basis, they have dropped by 97.5% in the past five years.
After completing a rights issue and with the shares going ex-rights on 28 March, the Anglo-German group reported strong demand for bookings across all markets, proactiveinvestor. co.uk reported in mid-April.
“Citi analyst Leo Carrington updated the bank's forecast model for the company to reflect terms of the rights issue, upgrading to a 'neutral (high risk)' rating from the previous 'sell (high risk)' stance,” the report said.
"With the stock having abruptly de-rated 22% since trading ex-rights we see valuation upside," the analyst was cited as writing.
He gave TUI a neutral rather than a buy rating amid a context of summer 2023 booking volumes still being down 11% compared to pre-pandemic 2019 as of 5 February, though the latest statement is suggesting some upside to these levels, the report said
“Perhaps the biggest problem facing TUI is the €3.4bn net debt burden the business is grappling with (excluding lease liabilities). In order to survive the pandemic when international travel came to a sudden halt, the company borrowed heavily. The Hanover-based firm received aid from the German government as well as other creditors,” a report on the investor website fool.co.uk said in April.
The recent €1.8 billion discounted rights issue should bring net interest payments under control, reducing them by approximately €80m to €90m.
“However, net debt remains a huge concern — and it’s enough to put me off investing at present. Granted, there’s certainly a route to a brighter future for the company and I’ll keep TUI shares on my watchlist. But, I’m not convinced the risk/reward profile of the stock is attractive, especially considering there could be further dilution of shareholder interests,” the report concluded.
