Shares in travel operator TUI (TUI) made modest progress on Friday, gaining 1.9% to 211.8p. However the last six months are a different story with the shares down 23% and new research suggests the company might need to find a further €2 billion to shore up its balance sheet.
Like lots of businesses with exposure to travel and tourism, TUI has found the pandemic and resulting travel restrictions extremely challenging and it has relied on bailouts from the German state to stay afloat.
In October the company announced a £935 million rights issue to bolster its coffers and start paying back some of the government cash it has received.
However, analysts at Berenberg don’t think the salvage job on its balance sheet is done yet, estimating debt will peak at €8.4 billion during the first half of 2022, more than double the current market valuation. They commented: ‘The recent rights issue has addressed liquidity concerns, (but) the capital structure remains weak and in need of further remedy.
‘CASH FLOW INSUFFICIENT’
‘Furthermore, the cash flow is insufficient to get net debt to a level where it can cancel the government funding, even allowing for the conversion of part of the debt to equity.
‘To deliver a sustainable capital structure, we believe that as well as the converting of the silent participation from the government, TUI will need to raise a further €2 billion. Some of this could be from the sale of Marella Cruises, but even then we still feel a further capital raise of c€1 billion will be needed.’
The Berenberg team also noted that after a strong start for summer 2022 booking there was a meaningful slowdown even in the two months before the Omicron variant hit adding to their concern that ‘despite the optimism of management, the pent-up demand may not be as strong as it predicts’.
