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2.5% and 5% sound low. What I then can't understand is why they pay 101m Euros a quarter on cash interest.
See slide 16:
https://www.tuigroup.com/damfiles/default/tuigroup-15/en/investors/6_Reports-and-presentations/Presentations/2023/20230808_FY23-Q3-Results-Presentation_Website.pdf-93adfff0372c8725129cefa80fcfd1e1.pdf
I was listening to Tui's results yesterday and they were saying Europeans were opting for shorthaul (narrowbody) travel mainly as a result of hotel prices in the US and Carribean doubling in price, primarily driven by demand from US punters.
I think you are including the notional interest on the Euro 2.9bn IFRS16 lease liabilities as an actual cash interest item. They are not.
https://www.tuigroup.com/damfiles/default/tuigroup-15/en/investors/6_Reports-and-presentations/Presentations/2023/20230213_FY23-Q1-Results-Presentation_Website_Final.pdf0-c7d15fb29a2af8b12ddb4328978f2ff6.pdf
I looked it up trading ebitda for tours lost about £93m over the covid period. Historically it made about £25m pa.
I agree with BB that the risk adjusted returns on offer are poor since when 'events' happen the costs can be massive. Look at TUI and how much cash that has consumed during covid, and at the best of times made only 500m on revenues of 19bn. Not worth the risk.
As we have indicated previously, we have decided to focus on Insurance Broking and to sell our Insurance Underwriting business, a move that will reduce the risk we take and release capital and allow us to further reduce our debt. With this in mind, I was pleased to be able to provide a £50m facility to give the Company additional flexibility.
Looks like Uncle Rog will put his money where his mouth is.
I am not sure where you got the £100m from. If their current beginning of period net incurred but not reported claims and unearned premium reserves are £159mn and they had not accounted for 13% inflation on this, then that is a shortfall of circa £20mn.
A lot of big insurers did not jack up rates in H1, and as a result led to a market where premiums were too low. In H2 almost all of them have taken corrective action. One of the worse offenders were Direct line who completely messed up pricing and their CEO had to resign as a result. Their share price has more or less halved in the same period.
I disagree regarding the £100m hole in insurance. At H1 this was an issue where new business was 50% down compared to PY mainly due to pricing action by Saga to not write at a loss. Per their FY TU they said their FY premiums were now 3% lower than PY. Therefore I can only assume the rest of the market has caught up and increased prices in tandem. This is further corroborated when looking at Admirals year end presentation (they write >20% of the uk motor market).
Please see page 20 onwards on their presentation where they discuss how premiums have moved against the wider market and how they have jacked up premiums in H2. In H1 saga's insurance director had predicted this would happen, and it has.
https://admiralgroup.co.uk/sites/default/files_public/slides/2023/03/2022-full-year-results-slides.pdf
This is an excerpt from the 2022 Annual accounts:
The Directors anticipate starting discussions to renew the RCF, which expires in November 2023, during Summer 2022, and believe that, based on the forecasts, the underlying strength and appeal of the Ted Baker brand alongside the positive and supportive relationship that the Group has had with its lender banks, the Group will be able to agree an extension to the RCF at an appropriate level and terms prior to its maturity.
The BoD played a blinder refinancing their debt and extending their maturity by 2 years to 2026, although at the time we were all complaining at the higher coupon. If they tried to refinance now they would be paying closer to 9% rather than the 5.5%.