14 August 2019 by jbchevrel
TUI AG (TUIGR) reported Q319 broadly in line with (not so high) expectations and confirmed its guidance. The 5y CDS is wider a small +10bp on the day, mid-point thus closing at c390bp, taking the move since last roll to +c140bp. Revenues came +4% YoY, EBITDA fell c€200m with -€144m coming from Boeing 737 MAX grounding alone. And TUIGR’s management expects another €150m due to the Boeing MAX 737 issue, that should show up in the company’s accounts at next quarter release, totalling c€300m for the year. On the less dark side of the picture, EBITDA in Markets & Airlines fell (-€32m) but by less than in previous quarters. On the brighter side of the picture, EBITDA in Holiday Experiences grew +17% YoY. No new trend in the business mix. That said, challenges remain, and include #1 overcapacity in Spain #2 the 737 MAX thing #3 slower booking patterns #4 the (un)beloved Brexit. As a mitigant of #2 risk, TUIGR might, along with other airliners, be eligible for compensation from Boeing (BA) in the future. FCF was impacted negatively as working capital inflow declined c€200m, mainly because of #3 risk. Debt-wise, net debt came c€1B so c€1B lower QoQ but underwhelming while compared to last year (down c€1.2B in the same period). Management conciliates eyeing another €0.4B net debt increase next quarter with leverage guided sub 3x. Rating-wise, management keeps committed to the current Ba2n/BBn. Interestingly, a review of TUIGR current capital allocation policies was mentioned. So one could expect a dividend review, which could be a positive catalyst on the credit side. Liquidity-wise, TUIGR still got €1.6B cash on b/s and €1.5B revolving credit facilty. This widening of just c10bp on the day is to put in context. The iTraxx CrossOver index widened by +18bp, more than last Aug 5th (+17bp) and last Aug 2nd (+15bp), simply the biggest intra-day move in the index since May 29 of 2018 (+21bp), back then it was due to Italy turmoil.