Travel stocks revisited – building up a watch list

My long term readers know that I did a lot of research on travel stocks in the past, however with little result other than a only slightly profitable investment into Expedia.

With the current situation, I decided to have a quick look at the travel sector again.

Up until now, the tourism industry has been seen as a secular growth industry, mainly due to 2 mega trends: Emerging market middle class tourists and older, more wealthy first world tourists were driving tourist numbers and subsectors such as cruises or AirBnB rooms. Just last year, “overtourism” became a major trend in social media, I guess this problem will not be a big issue in 2020.

Travel always has been vulnerable

Travel and tourism was and is always vulnerable to external events. Terrorism, regional wars,  SARS MERS, 9/11 all led to temporary slumps in tourism, either locally (Turkey, Magreb) or globally (9/11). However, so far tourism always recovered relatively. So will Covid19 be the big exception ? Is this time different ? Maybe, as this is now a global issue and even regional vacation targets such äs Südtirol are effected.

But I guess there is a high probability that after some time normality returns to the tourism sector as taking a vacation seems to be one of the basic needs of middle and upper class citizens throughout the world.

The same goes for business travel. Yes, you can work remotely from home. But anyone in a B2B environment knows how hard it is to close a B2B sale on the phone or video call or even pitch for a series A via video chat. Interestingly, especially the Tech sector has created hundreds of conventions where people meet and talk about tech. Again, these physical meetings seem to be some basic human desire and will most likely bounce back once this virus has been defeated/contained.

One specific aspect of Covid19 compared to other threads is that all kind of mass gatherings will be effected for some time, i.e. concerts, live sports etc. During the peak of the terrorist threat, many people wanted to make a statement and went to these events in spite of fear, but this will be clearly different this time as we can see currently in Northern Italy.

Other sectors that are depending on travel

There are also certain sectors that are pretty directly effected by travel activity. Aerospace is clearly one, including airplane leasing and airports. But also shopping, especially luxury shopping and malls have high percentages of tourists customers, as tourists like to shop. Many luxury items are purchased by tourists, so I would include them as well as the whole hospitality /restaurant sector. 

So it might be a little bit early, but if the underyling assumption is that things will normalize, it definitely time to create a watch list of potentially interesting stocks

Creating the first watch list 

Before digging into the stocks a few comments and summary and reference to my 20 rules, of which these need to be applied:

Just because a stock went down, it doesn’t mean it’s cheap. Avoid stocks that are in structural decline and companies that depend on refinancing.

If I look at my Travel series, stocks like Trivago, Expedia, Flight Centre and also Tripadvisor have structural issues due to the aggressive move of Google with Google Travel that makes life difficult for them in any case and Covid19 could in theory act as a catalyst. So in order to look at this more efficiently, I came up with the following thesis:

If a travel related stock is significantly down for 1 year and 3 year periods as well, there might be other factors at work. I will concentrate on these stocks that show a decent 1 and 3 year performance instead. Here is a first list of stocks that I selected on the basis that I either have already covered them in the blog or briefly looked at them.

The green ones are these that I find most interesting at a first look. I am open to suggestions and opinions this time.

 

 

 

34 comments

  • As mentioned in the first panic journal, bought some Amdeus IT (0,5% of portfolio) at 40,50 EUR /share

  • Hermés is probably the best luxury out there. BKNG will emerge even stronger, as EXPE can easily enter into liquidity issues due to financial leverage + inherent leverage (negative WC) and AIRBNB losing money. EVD.DE is in much better health than LYV, no leverage and overpay for acquisitions. Good luck to all of us

  • Whitbread PLC operates more than 800 hotels under the Premier Inn brand in the United Kingdom, plus restaurants and pubs. P/E = 11 and P/B = 0.9 at the time of this posting. It conforms to your 1yr/3yr rule.

  • Anyone following Fraport? Owner of Frankfurt airport, down almost 50% YTD

  • Maybe ATLANTIA is worth a look.
    Italian toll road and airport operator. Business not limited to Italy.
    Hit by multiple events, like Italian stock market crash, CoV lockdown, Genoa bridge collapse, air traffic reductions, …
    Balance sheet includes a lot of debt and risk from bridge collapse. Still need to dive deeper.

  • Apart from the above, I found On The Beach Group plc and Allegiant Travel Co interesting. The latter being en route to a vertical business model with a very focussed flight route portfolio.

    Happy hunting!
    🙂

  • Sixt might be interesting if it keeps falling. Given the catastrophic environment for rental cars I bet it will, and it’s clearly the strongest competitor and will use the opportunity to gain market share.

    In the airline sector I like Wizz Air very much – impressive execution of profitable 15-20% growth, strong balance sheet and likely to benefit from any consolidation in eastern Europe.

    • Started to buy a 0,5% position in Sixt Vz. Thanks for mentioning. High quality company with exposure, but in my opinion with no existential issues, especially after being able to sell the Sixt Leasing shares just a few days ago.

  • CTT Systems AB also might be of interest. Single source supplier for cabin air de-humidifiers and humidifiers for Boeing and Airbus. Highly profitable aftermarket business. Recently announced that their de-humidifiers will become optional equipment for the A321 (and later A320) program…

  • Heico and TransDigm, please 🙂
    Air Lease (AL) is pretty similar to AerCap.
    I would add another category for Sabre and Amadeus, as they generate fees from GDS

  • Ryanair, Canada Goose, Walt Disney and Ferrari

  • Take a closer look at CTS.

    It’s high quality. Valuation was/is a problem.

  • personal favorites:
    Do & Co – Catering for airlines and events (formula 1 + ..), great old pasteries in Vienna (Demel)
    Air France – together with KLM one of the leading business traveller, great connections with Delta, french touch, lately very ponctual thanks to canadian CEO, less disruption by strikes compared to Lufthansa
    Aena – Spanish airports, both Madrid and Barcelona are very well designed, Madrid Barajas will recieve high speed train connection, owns several more smaller across the country, which are efficiently managed, Spain attracts a lot of tourism thanks to food and sun
    Airbus – leading european aerospace company, books filled for several years, great a320neo, a350 and newly acquired a220 (pivoted in cutting oversized a380), participation on Dassault
    Figeac Aéro – aircraft components, family owned, subvalue

    • You should add 5y and 10y performance number, as 3y is quite short for a longer term perspective.

      Considering airports there is also the nice Vienna airport which is listed, I am adding it to my own watchlist, atm.

      Also I think that current operation for airlines will be much more efficient in the longterm as the number of pilots will go down to a single or a remote pilot quite soon (as seen on drones). Hence service will matter much more. A big reason to appreciate Air France. Outside of my level of expertise are train stocks, they may also get interesting:
      Stadler Rail, Talgo; Ferrovial (railroad construction); Getlink (eurostar), Canadian Pacific railways, Canadian National railways, Union Pacific Corp

  • I came across a Reuters article this weekend that mentions some other few names:
    – American Airlines Group
    – Hawaiian Holdings (regional carrier)
    – SkyWest
    I am not as experienced as you are but what about American Airlines Group ? Big company with a big name, down 40% this year.

  • TUI
    I would recommend to take a closer look at TUI.
    – largest tourism company in the world with over 20 million customers and growing
    – vertical integration across the value chain allows to provide great service and quality control
    – tourism is a very resilient business in a sense that people don’t like to cut back for a long time

    A look back:
    – recent bookings where up sharply because TUI could capitalise on the failure of Thomas Cook
    – last year and current year are impacted by the 737 Max delays. TUI will receive compensation for incured losses.
    – TUI transformed in recent years from a tour operator with low margins and little differentiation into a company that owns and operates all 4 segments of the value chain: airlines, cruise ships, hotels and destination services. While I don’t like the airlines part it allows to reach unique destinations and is an important part of the differentiation strategy.

    Current situation:
    A lot is riding on the development of the current flu and it would probably be best to wait for Q2 numbers before even thinking about an investment.

    Outlook:
    Assuming a more or less standard next year without recession (big assumption) and delivered airplanes (small assumption) current prices look very cheap.

    Rolls Royce
    I used to own Rolls Royce for a long time because it looks like a great business (power by the hour, increasing air traffic, high barriers to entry) and it was a very inefficient company. The then new CEO Warren East did a great job in simplifying the company but the rewards never came.
    I am now of the opinion that airplane engines are so advanced that it has become very hard to deliver promised and expected improvements. Even if you have a product that is working well, like engines for the A350, you still have disasters like engines for the Dreamliner which are an ongoing fix up job. When the Dreamliner saga will finally be over, there is no time celebrate. The newest Ultra Fan engine is about to launch…

    It is a cycle of large capital expenses into R&D and development of new and increasingly risky projects just to keep up with competition

  • Just by the numbers (don’t know their businesses that well):

    – IAG (British airways), limited competition across channel. Down 40%, profitable in normal years, and was at a single digit PE ratio *before* it fell.

    – Galaxy Entertainment Group (HKEX), Macau casino and bidding for Japan, profitable in normal years, and lots of net cash.

  • GNP-GlobalNosePicking

    Galaxy Entertainment, IHG , NagaCorp.

    The last by ‘my cousin’ GSP

  • Amadeus? Fire? Wenn ja, dann ist das ein Personaldienstleister.

  • Aena, SYD.Asx, AIA.ASX

  • Voyageurs du Monde, French travel agency…

  • Booking did better than Expedia, but in my opinion also has issues with the aggresive move of Google into travel.

  • I think in general I’d want to avoid anything too asset-heavy, as we don’t know how long this downturn will last. BKNG not interesting for you?

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