That pro-European Union newspaper the Financial Times has done the Leave campaign a power of good with its persistent use of the phrase “despite Brexit” in its headlines. The unintended implication is that life in Britain has gone on pretty much the same since the referendum and is likely to continue to do so.
Shareholders in travel companies should be particularly grateful. Fears, which I must admit I shared, that Brits would seriously cut down on foreign holidays show no signs of coming to pass. For the likes of Thomas Cook (TCG) and Tui (TUI) the first quarter of their financial year, covering October to December, is simultaneously the least and most important one.
It’s the time that hardly anyone goes away so they always make a loss. But it is also vital in setting the tone for their full year, with early indications of bookings for winter sports in January-March and more importantly the profitable summer breaks. Get those holidays sold and people will scramble to pay full price before the opportunities for snow and sun disappear; otherwise people will hold off for last-minute bargains.
TUI this week reported turnover up 9% in its first quarter, with pre-tax losses down from €103 million to €73 million. Significantly there were better bookings for Turkey and North Africa, destinations that used to be popular with the Brits but which have been off the radar in recent years because of political upheaval and the risk of violence.
One swallow doesn’t make a summer. You should never judge an entire sector by just one company, since higher sales for one business could have come at the expense of another. However, the TUI update was similar in tone to one the previous week from Cook, where first quarter revenue was up 7%, with more customers paying higher average prices. Losses were reduced from £52 million to £42 million and debt has been refinanced at lower interest rates for a longer period.
More than 80% of winter holidays and airline seats have been sold, in line with last year, and 34% of summer holidays, up 3%. Chief executive Peter Fankhauser said: “From all that we see so far, customers' appetite for a summer holiday abroad shows no sign of slowing down.”
On the day that TUI announced its figures, Cook followed up by resuming flights to Tunisia for the first time since the terrorist attack in Sousse in 2015 when 30 British tourists were killed.
I do feel though that all the good news is already in the share prices. TUI, for example, has almost doubled in less than two years despite slipping from January’s peak. Cook is up 33% since last June though it, too, is off January’s best level.
I find the sector too volatile for my long-term tastes but if you are nifty with a good eye for when to get in and out you may do well to wait for the shares to slip back a little further before diving in. If they don’t and you missed the chance to get on board, just put it down to experience and look elsewhere.
Takeover Opportunity Knocks
I’ve got a little tired of target companies complaining that takeover bids are opportunistic – of course they are, otherwise what’s the point of making them? However, there is little originality in GKN’s (GKN) defence to the offer from Melrose (MRO). The idea seems for GKN to do whatever Melrose would do but in more of a panic.
GKN shares remain at a small discount to the offer price, suggesting that investors do not expect a higher bid, either from Melrose or a white knight. My inclination is for GKN shareholders to hold on just in case a little more can be squeezed out of Melrose in return for a done deal. It would not be wrong, though, to take profits now as the bid could well go through as it stands while GKN shares will fall sharply if Melrose walks away.
