The prospect of long airport queues, flight delays and malfunctioning baggage handling is hardly an enticing one for would-be travellers. Throw in the impact of the weak pound on the cost of an overseas trip and growing economic uncertainty and suddenly holidaying overseas does not seem quite such an attractive proposition.
Fortunately for Tui Group, not everybody thinks like me. Rather than a fall in demand, the Thomson and First Choice operator said summer bookings from the UK were at the same high level as last year.
The group even raised its forecast for full-year revenues — from growth of 3 per cent to “significantly more than 3 per cent” — and maintained its guidance for underlying earnings growth of at least 10 per cent. All of which enabled Tui for the first time to report a profit for the first nine months of the year as opposed to its usual seasonal loss. Despite hitting all the targets set three years ago when it was created from the merger of Britain’s Tui Travel and its German parent, the shares have made little progress. Analysts believe that this is mainly because of concerns over the capital expenditure inherent in its strategic shift from a distribution-based tour operator to an integrated tourism group that increasingly owns its content, in the form of hotels and cruise ships.
Yet Fritz Joussen, the Tui chief executive, is adamant that this strategic shift will give the Anglo-German group a big advantage over its rivals by making the business less seasonal and distributing profits more evenly through the year. Hence the move into profitability at the nine-month stage for the first time. It also, he adds, gives the group greater control over the quality of its product.
Present trading is strong, with the summer programme 88 per cent sold, both for the group as a whole and for the UK source market, where demand had remained resilient, despite a 7 per cent increase in prices partly thanks to sterling-related cost inflation.
Spain was “pretty full”, demand to Turkey was rising and the group was offering cheaper holidays to Bulgaria, Croatia and Cape Verde.
The message from Tui’s trading is that an overseas summer holiday has become sacrosanct to many people, and a modest increase in prices or a spot of travel disruption is unlikely to deter them. If the recent dismal UK weather continues, that will only accelerate.
MY ADVICE Buy
WHY Resilient demand for holidays and increasing control over product quality underpin double-digit earnings growth forecast
GO-AHEAD GROUP
During the depths of its problems on Southern Railway, top executives at Go-Ahead, the senior partner in the Govia operating joint venture, were asked whether the fiasco on the south-of-London commuter network would count against them in future franchise bidding competitions.
The question was greeted with incredulity. Why, the puzzled executives wondered, would the government punish Go-Ahead/Govia for effectively carrying out government policy on Southern?
The first test came with the re-tendering of Govia’s London Midland franchise between the capital and the West Midlands. It has lost that but it is as yet unclear why.
What is certain is the reputational damage to Go-Ahead over Southern is leaving the shares at a discount to what the City thinks might be fair value on financial fundamentals.
Jefferies’ bullish £24.25 rating on the shares contains 83p of value attached to winning the West Midlands franchise. Its worst-case valuation based on the group being left with only its nationwide bus interests and losing, in time, its Southern, Thameslink and Southeastern rail operations is £18. The shares closed 58p lower at £17.44 last night, reflecting the uncertainty.
MY ADVICE Avoid
WHY There is an upside case to be made but only for the brave
COCA-COLA HBC
The near two-thirds jump in the share price of Coca-Cola Hellenic Bottling Company over the past 12 months is testament to the hard work done by Dimitris Lois, the chief executive, and his team over the preceding few years in investing in key brands while keeping a tight lid on costs.
Now the consumer environment is more benign, the resultant revenue growth is having a disproportionate impact on the bottom line, as yesterday’s forecast-beating interim results demonstrate. Excluding the impact of currency, net revenues jumped by 5.7 per cent to €3.2 billion after accelerating in the second quarter and operating profits fizzed 26.8 per cent higher to €291.1 million.
Mr Lois, who oversaw switching the company’s main listing from Athens to London four years ago, said he was pleased to have achieved volume and revenue-per-case growth in all three of its divisions — established markets, developing markets and emerging markets. In the latter, he highlighted good performances in Ukraine, Romania and Serbia.
Shares in the FTSE 100 Coke bottler jumped more than 9 per cent, up 219p to £25.92, having almost doubled since Mr Lois outlined its 2020 targets in June last year.
Coca-Cola HBC’s strong balance sheet and cash generation has raised the possibility of a cash return to investors in the second half of the year, although some analysts reckon it will keep its powder dry pending the outcome of the sale of Coca-Cola Beverages Africa to complement its Nigerian operations.
MY ADVICE Hold
WHY Promise of further margin upside is compelling
AND FINALLY . . .
Adnams may not be the biggest brewer in the world — or even in Suffolk — but its beers (and spirits) are generally excellent and the company continues to invest in its operations. This was reflected in a 9 per cent jump in first-half beer volumes, which in turn drove a 6.2 per cent increase in turnover to £33.2 million. Its size counted against it at the profit line, however. The discovery of asbestos during a revamp of its Swan Hotel, in Southwold, resulted in a £721,000 writeoff, pushing the group to a £544,000 half-year loss.
