Investment View: Sunny days for Tui but Thomas Cook still shivers

Tui is worth the risk, particularly if rain-sodden Brits fire up the PC and book

TUI travel; SHARE PRICE: 177.8p BUY

Thomas Cook; SHARE PRICE: 19p AVOID.

After an all-too-brief respite, it was raining again yesterday. But will this have an impact on consumers? How many more soggy days before, in spite of the consumer squeeze (or maybe because of it) people decide that they've had enough. Time to throw caution to the wind and splash out on a holiday in the sun.

If this happens Tui Travel and Thomas Cook could yet enjoy a better-than-expected summer season and so might be worth a gamble. But which one? These two travel firms couldn't be more different. Thomas Cook was recently on its knees and still looks wobbly. Tui, however, still appears to be reasonably fit and its recent results were rather encouraging.

After the hiatus caused by the Arab spring, people are beginning to trickle back into North Africa. Places like Tunisia (relatively stable) have been reviving as holiday destinations although people are still steering clear of Egypt. Greece (a big earner) remains a worry. The Germans not only beat the British to the sun loungers, they also spend more. But anti-German sentiment in Greece has caused them to steer clear of what had been a favoured destination. And British tourists may baulk at the unrest unfolding on their TV screens.

That said, Tui's first-half operating loss of £317m for the six months ending 31 March was similar to last year's £307m. At the pre-tax level, including financing costs and one-offs, it looked worse, with the deficit finishing £91m higher at £457m.

But there was an improvement in the second quarter and summer trading is in line. Tui is also out performing in the UK, where it is best known as Thomson. Thomas Cook's troubles are the reason, and the rain may help. Debt, at £1.18bn, basically unchanged, is still high and the company does have issues with its pension scheme.

But Tui trades at just 7.5 times forecast full-year earnings, with a prospective yield of 6 per cent, which is twice covered by earnings, most of which come in the second half.

Bookings from most of the group's markets look relatively healthy, considering the economic backdrop, with the notable exception of France. What is more, it is majority owned by a German parent, Tui AG, and there remains the possibility that it might table an offer to buy out minority investors.

This should provide a floor for the shares, which are up 19 per cent in the year to date. While they don't offer as much value as they did, there is enough to like about Tui to make it worth the risk, particularly if rain-sodden Brits get sufficiently fed up to fire up the PC and book.

Thomas Cook, however, is a different story. Anyone who gambles needs to obey a strict rule: only bet what you can afford to lose. An investment in Thomas Cook has to be classified as an out-and-out gamble right now. But is it a worthy gamble?

The company has signed a new financing deal so it appears to be out of imminent danger. At the end of last week it unveiled a sale and leaseback deal involving seven Boeing 757 aircraft and six Boeing 767s with an agreement in principle over two more of the latter. This should realise about £185m in cash for the company, which it badly needs to provide some breathing room as it grapples with a debt mountain. But its shares still fell 10 per cent yesterday ahead of the shareholder vote on the deal because of worries about the group's financial position if it doesn't go though. Which speaks for itself.

And there is a catch, and it's a big one. Sale and leasebacks were all the rage in the City a while back. Retailers with big property portfolios were either encouraged to do them or (like Sainsbury's) found themselves battling against attempts to force such a move.

Some of those retailers who did take the plunge came to badly regret it when the recession hit home. Shareholders enjoyed some short-term gains from the deals, which released lots of cash. But the companies involved suffered long-term pain as they struggled to meet the terms of the leases they'd been left with.

Of course, these are aircraft not shopfronts, but the companies buying Thomas Cook's planes aren't charities. Guggenheim Aviation Partners and Aircastle Advisor wouldn't have agreed unless there was considerable upside in it for them. And there is: the deal will result in a £10m yearly hit to Thomas Cook's earnings.

Those earnings weren't looking all that good even before the sale and leasebacks. UK bookings for the summer season were down 9 per cent, ahead of capacity reductions of 13 per cent, even though average selling prices were up a bit.

Trading in western Europe, and notably in France, has been poor while in northern Europe bookings fell 6 per cent. The seasonal loss from operations for the six months to the end of March widened to £262.7m from £165.8m. With net debt of £1.4bn the cash from the sale and leaseback is helpful, but small beer. Thomas Cook is not a gamble I'd be interested in. Avoid.

Arts & Entertainment
Ricky Gervais at a screening of 'Muppets Most Wanted' in London last month
tvRicky Gervais on the return of 'Derek' – and why he still ignores his critics
Sport
Gareth Bale dribbled from inside his own half and finished calmly late in the final to hand Real a 2-1 win at the Mestalla in Valencia
sport
Life & Style
Infant child breast-feeding with eyes closed
healthTo stop mummy having any more babies, according to scientists
Arts & Entertainment
Homer meets Lego Marge in the 25th anniversary episode of The Simpsons, set to air on 4 May
tv
VIDEO
Arts & Entertainment
James Franco and Chris O'Dowd in Of Mice and Men on Broadway
theatreReview: Of Mice and Men, Longacre Theatre
News
news
Life & Style
Going down: Google's ambition to build an elevator into space isn't likely to be fulfilled any time soon
techTechnology giant’s scientists say there is no material strong enough for a cable from Earth into orbit
Arts & Entertainment
film
Sport
Vito Mannone fails to keep out Samir Nasri's late strike
sportMan City 2 Sunderland 2: Goalkeeping howler allows Man City to scrap a draw – but Premier League title is Liverpool's to lose
News
David Cameron sings a hymn during the enthronement service of The Most Rev Justin Welby as Archbishop of Canterbury, at Canterbury Cathedral last year
news
Life & Style
From long to Jong: Guy Pewsey gets the North Korean leader's look
fashionThe Independent heads to an Ealing hairdressers to try out the North Korean dictator's trademark do
Extras
indybest10 best smartphones
Arts & Entertainment
tvCreator Vince Gilligan sheds light on alternate endings
Life & Style
Google Doodle celebrates the 63rd anniversary of the Peak District National Park
tech
News
Paul Weller, aka the Modfather, performing at last year’s Isle of Wight Festival in Newport
people
Life & Style
Michael Acton Smith founded Firebox straight out of university before creating Moshi Monsters
techHe started out selling silliness with online retailer Firebox, before launching virtual creatures who took the real world by storm
Have you tried new the Independent Digital Edition iPad app?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Client Relationship Manager - SQL, Python

£40000 - £50000 per annum: Harrington Starr: Client Relationship Manager - SQL...

**Financial Services Tax**

£35000 - £50000 per annum: Pro-Recruitment Group: Take your chance to join the...

Data Analyst - Financial services, Client data, LEI

£40000 - £50000 per annum + BONUS + BENEFITS: Harrington Starr: A leading, Cit...

Management Consultancy - Operational Research Analysts

£35000 - £50000 per annum + Bonus + Benefits: Pro-Recruitment Group: You must ...

Day In a Page

Ricky Gervais: 'People are waiting for me to fail. If you think it's awful, then just don't watch it'

Ricky Gervais: 'People are waiting for me to fail'

As the second series of his divisive sitcom 'Derek' hits screens, the comedian tells James Rampton why he'll never bow to the critics who habitually circle his work
Mad Men series 7, TV review: The suits are still sharp, but Don Draper has lost his edge

Mad Men returns for a final fling

The suits are still sharp, but Don Draper has lost his edge
Google finds a lift into space will never get off the ground as there is no material strong enough for a cable from Earth into orbit

Google finds a lift into space will never get off the ground

Technology giant’s scientists say there is no material strong enough for a cable from Earth into orbit
Westminster is awash with tales of young men being sexually harassed - but it's far from being just a problem in politics

Is sexual harassment a fact of gay life?

Westminster is awash with tales of young men being sexually harassed - but it's far from being just a problem in politics
Moshi Monster creator Michael Acton Smith: The man behind a British success story

Moshi Monster creator Michael Acton Smith

Acton Smith launched a world of virtual creatures who took the real world by storm
Kim Jong-un's haircut: The Independent heads to Ealing to try out the dictator's do

Our journalist tries out Kim Jong-un's haircut

The North Korean embassy in London complained when M&M Hair Academy used Kim Jong-un's image in the window. Curious, Guy Pewsey heads to the hair salon and surrenders to the clippers
A History of the First World War in 100 moments: A forgotten naval victory in which even Nature played a part

A History of the First World War in 100 moments

A forgotten naval victory in which even Nature played a part
Vespa rides on with launch of Primavera: Iconic Italian scooter still revving up millions of sales

Vespa rides on with launch of the Primavera

The Vespa has been a style icon since the 1950s and the release this month of its latest model confirms it has lost little of its lustre
Record Store Day: Independent music shops can offer a tempting alternative to downloads

Record Store Day celebrates independent music shops

This Saturday sees a host of events around the country to champion the sellers of well-grooved wax
Taunton's policy of putting philosophy at heart of its curriculum is one of secrets of its success

Education: Secret of Taunton's success

Taunton School, in Somerset, is one of the country's leading independent schools, says Richard Garner
10 best smartphones

10 best smartphones

With a number of new smartphones on the market, we round up the best around, including some more established models
Mickey Arthur: Aussie tells ECB to stick with Ashley Giles

Mickey Arthur: Aussie tells ECB to stick with Ashley Giles

The former Australia coach on why England must keep to Plan A, about his shock at their collapse Down Under, why he sent players home from India and the agonies of losing his job
Homelessness: Why is the supported lodgings lifeline under threat?

Why is the supported lodgings lifeline under threat?

Zubairi Sentongo swapped poverty in Uganda for homelessness in Britain. But a YMCA scheme connected him with a couple offering warmth and shelter
A History of the First World War in 100 Moments: When the world’s biggest shed took over Regent’s Park

A History of the First World War in 100 Moments

When the world’s biggest shed took over Regent’s Park
The pain of IVF

The pain of IVF

As an Italian woman vows to keep the babies from someone else’s eggs, Julian Baggini ponders how the reality of childbirth is often messier than the natural ideal