TUI and Cineworld

Thursday, August 9, 2018 - 09:43

“The steady advance in the FTSE 100 so far this week is rudely interrupted as global tensions over trade continue to dog the financial markets,” says AJ Bell investment director Russ Mould.


“It’s hard to know how to read today’s third quarter update from travel operator TUI. On the one hand earnings are down nearly 7% year-on-year and yet on the other the company reiterates its guidance for full year growth of ‘at least 10%.’

“Notably this is 10% expansion in underlying earnings and excludes the impact of some pretty hefty currency headwinds.

“The package holidays part of the business, particularly the UK component, has underperformed – almost certainly due to the World Cup and recent heat wave.

“The cruise and hotels divisions are doing better, and this is positive for the company as these activities typically generate higher margins.

“However, the market appears to be sceptical of TUI’s pledge to achieve full year guidance, perhaps mindful of its rival Thomas Cook guiding for results to be at the lower end of expectations last week.


“Half year results from cinema chain Cineworld offer some early if not complete vindication of the company’s £4.5bn acquisition of US rival Regal.

“Supported by a slate of exciting new releases at the box office, pre-tax profit doubled, and the company is now the second largest global cinema chain by number of screens.

“Critics of the Regal deal felt the deal was too big for Cineworld and that the company had taken on too much debt. The level of borrowing is high at 3.8 times earnings but more announcements like today’s may begin to win over the sceptics.

“The underlying business is cash generative and investors will be looking for the debt position to have improved by the year end.

“However, this will need to be balanced with investment in the acquired Regal cinemas where there is scope to repeat the trick the company has pulled off in the UK of sprucing up venues to attract higher spending per customer.”

These articles are for information purposes only and are not a personal recommendation or advice

The daily market update is written by Russ Mould, AJ Bell’s Investment Director and his team. The article highlights the movement in the main index, winners and losers on the day and any macro-economic announcements.