CYBG bounces back and TUI’s results could have been a lot worse

Wednesday, May 15, 2019 - 10:36

“Investors will be very relieved that we haven’t got yet another day of share prices all flashing red. The FTSE 100 was flat on Wednesday morning which is a welcome relief to several nasty sessions on the market in the past week," says Russ Mould, Investment Director at AJ Bell.

“One cannot rule out further volatility given the trade war is still in play and so today’s relative calm may not necessarily last long.”


“Given the lukewarm numbers served up by its larger peers of late and the disaster story unfolding at Metro Bank, the very positive market response to CYBG’s better-than-expected half year results should not come as a huge surprise.

“A weak performance for the share price heading into the financial results should be considered in the context of today’s bounce.

“As the first period to include a contribution from the Virgin Money acquisition, these results offer some early vindication of the deal.

“Management appear to be excited about the opportunities created by the enlarged business and will get the chance to wax lyrical on these at an investor day on 19 June.

“Less positive is a tick up in impairment losses – some of which relates to bad debts among business and credit card customers.

“This is a salutary reminder of one of the key risks facing domestic banks if a chaotic Brexit leads to economic pain.

“A competitive mortgage market continues to be an issue and the net interest margin, a key industry metric which measures profitability, is down a smidge.

“There is also a significant difference between the statutory and adjusted profit. Though in fairness much of this relates to the Virgin transaction rather than anything more sinister.”


“Expectations have been very low for holiday companies in light of lower bookings across the sector as consumers worry about how Brexit might impact flights and their own personal finances.

“Fortunately pushing back the Brexit deadline has given a nice lift to the leisure sector as the public regains confidence in wanting to buy their two weeks in the sun.

TUI’s results are far from a disaster which explains why the shares are up on the news. Parts of the market remain in oversupply such as Spain which is having an impact on prices and therefore its margins. It has also had to contend with the impact of Boeing 737 MAX aircraft being grounded. Yet there is some good news.

“Holidays seller On The Beach this week talked about bookings across the travel market being down an estimated 10% year-on-year so far in 2019. In that context, it is encouraging to see TUI’s summer bookings ‘only’ down 3% and average selling prices up 1%. That’s not good enough to cover its cost inflation, but it could have been a lot worse given the very difficult market backdrop.

“Investment in cruises, hotels and experience holidays is paying off and differentiated content is helping to make TUI stand out from the crowd, which helps to drive up the number of people taking its breaks and ultimately should lift the price they pay.

“While earnings could take another hit if it cannot resume flying 737 MAX aircraft by mid-July, TUI’s management are doing their best to reshape the business to thrive over the longer term. They just need to navigate what is likely to be a bumpy journey.”

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.