Sales increasing fast for TUI and Diageo resumes bumper shareholder returns

“The FTSE 100 staged a recovery after yesterday’s bruising inflation-linked sell-off, moving close to the 7,000 mark which the index seems to have claimed and surrendered more often than a baby with a rattle,” says AJ Bell Investment Director Russ Mould.

“Some positive corporate updates are helping support the move higher, with miners up and tech-focused investment trust Scottish Mortgage recovering some ground after being hit hard in the recent volatility.

“The next move for the markets could be determined by US inflation figures out this afternoon. If these come in ahead of expectations then investors may need to prepare themselves for more pain but a lower than forecast reading could help calm tensions over rising prices.”

TUI

“Despite the pandemic, appetite for a week in the sun doesn’t appear to have disappeared based on the latest update from travel operator TUI.

“For a while some of the optimism from the travel sector has felt a bit forced, like companies couldn’t even contemplate another summer of disruption.

“Airlines and traditional travel operators like TUI have significant fixed costs so when they aren’t getting any cash from holidaymakers, losses and debt can mount quickly.

“For all the concerns over TUI, there’s an argument in Germany that the company is seen as ‘too big to fail’, having been bailed out by the German government three times so far during the pandemic and received almost €5 billion in state support.

“And despite the complications and continuing restrictions it does appear people are willing to put up with Covid tests and periods in isolation if it means you can enjoy a cocktail on the beach or a dip in the Med.

“A preference for all-inclusive holidays makes sense, as it will probably be perceived as a safer option by tourists and the good news for TUI is it can charge more for these breaks.

“A more normal summer might be possible by 2022 and TUI is seeing bumper bookings for next year, and simply by surviving it could thrive if smaller rivals fail.”

Diageo

Diageo is getting a big round in for shareholders. The alcoholic drinks group’s recovery from Covid-19 means it is set to dole out billions in share buybacks and special dividends.

“Like several businesses, Diageo hoarded cash during the pandemic to help get it through, now profit is expected to bounce back quicker than expected it can afford to be more generous.

“With its on-trade sales in bars, clubs and restaurants virtually disappearing for large parts of 2020 and the beginning of 2021 the company did a good realignment job – focusing its marketing on the off-trade as people enjoyed their Guinness or Johnnie Walker at home instead.

“Now things are reopening Diageo is likely to see hospitality-linked sales recover with the only area still severely impacted being sales in airports and other travel hubs.

“The company’s main focus is on the manufacture of spirits and this industry has some winning attributes for a market leader like Diageo as consumption is increasing in both developed and emerging markets, the relative costs of making it are low and yet brand power allows it to be sold at a premium price.”

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.