TUI looks vulnerable to me

COVID is starting to ramp up in Europe now. Things are worsening in Spain, and it’s starting to look bad as a holiday destination. It’s difficult to gain a perspective in the UK, because I believe we are only at the thin edge of the wedge. It seems to be the same for the US. I do hope we avoid a situation like China and Italy. Realistically, though, I think the wheels have been set in motion, and it’s just a question of time.

If the US catches COVID bad then I expect stock markets to get a lot worse.

UK stock markets are down about 30%, so we’re in unequivocal bear territory. I do think markets will go lower. I’m actually a little optimistic about our eventual recovery from the virus, relatively speaking.

Anyway …

I note that tour operator TUI is down 14.3% to 398p. It does a lot of package holidays to Spain, so obviously it is going to be greatly impacted by the virus. One thing I did want to point out is just how vulnerable I think TUI is as a company.

A quick check on Stockopedia reveals that it has a market cap of £2.8b and an EV (enterprise value) of £7.9b. I view this as perilously high debt. TUI has operating margins of around 4%, and has plenty of fixed costs. It won’t take much to put this company into a loss, thereby increasing its debt load.

Put it this way: if I was offered an even-money bet as to whether it would survive or not over the next year, then I would put my money on “survive”. But make no mistake, TUI is vulnerable.

It’s a shame. I have taken many holidays through TUI. I found the company to be well-organised and the reps helpful. So I wouldn’t want it to see it go the way of Thomas Cook.

I did not take a holiday abroad last year on account of my passport near expiry and the existence of the tourist tax on the Balaerics. £75 to renew a passport is outrageous, too. I do resent being treated like a walking wallet.

Akthough I do miss going abroad a little, there’s something to be said for staying at home. If we get nice weather, then I sometimes wonder what the point of going abroad is. Having said that, I do live in Scotland! Brr.

Anyway, that’s enough nonsense from me for today. Stay safe out there.

Update 1: Someone mentioned SAGA, which is a travel operator for old crusties like me. I see it made a loss in 2019, so prospects for 2020 can’t ge good, either. SAGA is down 15% to 14.8p. It has a market cap of £193m, and an EV of £748. Verdict: too much debt, especially for such a cyclical sector. SAGA has a long trading history, but has only been publicly listed since 2014. I think it was a VC management buyout jobby. As you might expect for such a setup the company was pushed out to the market loaded with debt. It’s on a PE of 2.4 and a PBV of 0.2 and a momentum score of 15. Clearly Mr. Market thinks that the wheels are going to fall off the wagon on this one, and I wouldn’t necessarily question his judgement at this point.

Update 2: I didn’t want to post this update on Stockopedia because it might be considered too frivolous. The FT100 is now down 9.2%, similar to the Dow. A BB poster noted said that gold was falling, too, and that there was a simple explanation: margin calls. I found a video on YouTube from late 2018 entitled: “MARGIN CALL: Why The Next Market Crash Will Be Worse Than Anticipated.” Margin debt was at an all-time high when the video was made, and I don’t imagine things are any better now than they were a year-and-a-bit ago. The video may have been early, but may have been prescient. Make of it what you will.

Update 3: FT100 closed down 10.87%, making it the second-biggest fall on record. The index closed at 5237.48.

TUI 398p

SAGA 14.8p

About mcturra2000

Computer programmer living in Scotland.
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