Impressive recovery

easyJet’s Q3 results offered investors some encouraging numbers. Costs fell to £34m per week, which actually outperformed the Q1 guidance of £40m. Although these costs may seem steep, the fact that the company is performing better than expectations is a great signal to investors of effective management. In addition to this, the firm has signalled Q4 capacity will be near 60% of its 2019 levels, as opposed to 17% in Q3, meaning revenues will start to increase again. Both of these metrics seem to point easyJet shares in the right direction.

Another notable point that could help easyJet and its share price move forward is the costs streamlining the pandemic has forced on the firm. A bold (albeit sad) move of cutting staff by 30% was initially met with industry criticism. However, it is a large part of the reason the firm was able to shrink its losses to £318m for Q3. Moving out of the pandemic, I expect easyJet to continue this effective cost management, which could drive future profit margins higher. This would be great news for easyJet shares.

Risks lie ahead

There are still some serious risks to easyJet shares. The constant uncertainty of the pandemic continues to haunt the travel industry and as my fellow Fool Charlie Keough highlighted, many analysts don’t expect the aviation industry to fully recover until 2024. Predictions like this are a big red flag for stocks like easyJet.

In addition to this, the shares have fallen almost 20% in the past six months, slowing down the momentum the stock gained in the tail end of 2020. It is a similar case with peers TUI, and IAG, which have seen their share prices tumble by 29% and 22% in the past six months, respectively. This negative market sentiment doesn’t place easyJet shares in a strong position, in my eyes.

A good time to buy easyJet shares?

I think the shares still have some challenges to face. Although cost management and flight capacity numbers are encouraging, there is still a long way to go before the firm is back to its pre-pandemic self. Broader market sentiment also seems to be negative, which isn’t great news for the firm. I sold my easyJet shares in March and am waiting until I have a clearer picture of the travel industry’s future before possibly adding them back in my portfolio.

The post Is now a good time to buy easyJet shares? appeared first on The Twelfth Magpie.

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Dylan Hood has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

But with house prices at record highs in many areas, and landlords facing increased costs, making money from renting isn’t as easy as it might seem. In this article, I’ll explain why I think investors are likely to enjoy stronger returns from property stocks.

A record year

FTSE 250 housebuilder Bovis Homes Group (LSE: BVS) is rebounding strongly from a build quality scandal which hit the firm’s profits in 2016 and 2017. Results out today show that pre-tax profit rose by 47.5% to a record £168.1m last year, beating market expectations.

This increase wasn’t achieved by cranking out more houses. The number of homes completed by the company only rose by 3% last year, and the average selling price was only 0.3% higher.

Instead, Bovis boss Greg Fitzgerald has put in place a number of measures to improve the profit margin on each home. These include changes to the pricing, specification and build processes used. Looking ahead, the company is introducing a new housing range, Phoenix, this year. This is expected to deliver a 3% improvement in profit margins compared to equivalent previous designs.

These changes have pleased home-buying customers too. The company says that it’s on track to earn a four-star customer satisfaction score in the 2018 Home Builders Federation survey — up from just two stars in 2017.

Cash flow supports 9% yield

Last year’s strong performance left the group with a net cash balance of £126.8m, with a further £68m due soon from a joint venture project in Wellingborough. As a result, the ordinary dividend will rise by 20% to 57p per share. Shareholders will also receive a 45p per share special dividend, giving a total payout of 102p per share — that’s a yield of 9.5%.

Analysts expect a similar payout in 2019. Consensus forecasts currently show a total dividend of 100.4p per share for this year, giving a prospective yield of 9.4%. That looks higher to me than the average yields available on rental properties these days.

Although the economic outlook remains uncertain in the UK, Bovis says sales so far this year have been 15.7% higher than during the same period last year. Almost half of this year’s forecast revenue has already been secured. I believe Bovis remains a good alternative to buy-to-let.

How safe is this 8% payout?

I’m less confident in the 8% dividend yield being offered by FTSE 100 travel group TUI AG (LSE: TUI), whose brands include First Choice, Hapag-Lloyd Cruises and Crystal Ski. In early February, the firm’s shares fell by nearly 20% after it warned of pressure on profit margins for summer 2019.

The group now expects profits to be broadly flat this year, versus previous forecasts of 10% growth. Analysts have cut their earnings forecasts for the current year by about 10%, but the shares have now fallen by 30% since the start of the year.

This has left the shares looking cheap, on 7.7 times forecast earnings and with a dividend yield of 8.1%. However, I think there’s a significant risk of more bad news and perhaps a dividend cut.

I’ve previously admired TUI’s progress, but with profit margins falling and an uncertain outlook, I think it’s too soon to get involved here. I’d avoid this stock for now.

The post Forget buy-to-let. I’d collect 9% from this FTSE 250 property stock appeared first on The Twelfth Magpie.

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Roland Head owns shares of Bovis Homes Group. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

This could mean that the stock now offers a wider margin of safety. It could even outperform the FTSE 100 as a result of its low valuation. However, it’s not the only stock that could be worth a closer look at the present time. Reporting on Thursday was a FTSE 100 stock which appears to offer a favourable risk/reward ratio.

Improving prospects

The stock in question is tourism company TUI (LSE: TUI). It released a pre-close trading update which confirmed that it is performing in line with expectations. It is set to post its fourth consecutive year of double-digit growth in underlying EBITA (earnings before interest, tax and amortisation). It has been able to expand its hotel and cruise offer, with occupancies and yields remaining high. It has seen growth in the number of customers purchasing holidays across all of its major markets, even though hot weather in Northern Europe has caused a slowdown in the wider industry.

Looking ahead, TUI is forecast to post a rise in its bottom line of 8% in the current year, followed by further growth of 14% next year. Despite this, the company trades on a price-to-earnings growth (PEG) ratio of just 0.9, which suggests that it could offer a wide margin of safety. As such, and while the wider travel industry faces an uncertain outlook, the company’s share price performance could be ahead of the FTSE 100 over the medium term.

Recovery potential

The turnaround potential of KAZ Minerals seems to be high. Although further share price falls cannot be ruled out due to investor sentiment being weak, the financial outlook of the business seems to be improving. For example, over the next two years it is expected to report a rise in earnings of 13% and 11%. This has the potential to catalyse investor sentiment – especially when the stock trades on a PEG ratio of just 0.5.

With there being the potential for a supply deficit in copper over the medium term, the prospects for the business seem to be improving. Certainly, there is risk in undertaking the recently-announced acquisition, but in an industry which could still offer high returns in the long run, it could prove to be a sound move.

The KAZ Minerals share price has a history of volatility. Changes in foreign exchange rates and in the outlook for the world economy can, among other factors, cause uncertainty. While this situation could continue, ultimately the company appears to be delivering improved operational performance and trades at a low valuation. As such, now could be the right time to buy it for the long term.

The post Why the KAZ Minerals share price could outperform the FTSE 100 appeared first on The Twelfth Magpie.

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Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Carnival — whose brands include Cunard, P&O Cruises and Princess Cruises — has reported a full-year adjusted profit of $2.8bn for the year to 30 November, up by 7.6% from $2.6bn a year earlier. Helped by a 4.5% increase in average ticket prices, today’s results have come in slightly ahead of consensus forecasts for net earnings of $2.7bn.

Although cancellations caused by hurricanes hit the group’s fourth-quarter earnings, management says advance bookings for 2018 are currently ahead of last year “at higher prices”.

Shareholders will see their total dividend for the year rise by 18% to $1.60 per share, giving a yield of 2.4%.

A potential bargain?

Carnival shares have lost nearly 10% of their value since hitting all-time highs of more than £54 in the summer. In my view, this weaker sentiment has left the stock looking more attractive than it has done for some time.

Costs excluding fuel are expected to rise by just 1% over the coming year, while revenue is expected to be 2.5% higher, excluding exchange rate effects. The mid-point of the firm’s 2018 guidance is for adjusted earnings to rise by 8.6% to $4.15 per share, putting the stock on a forecast P/E of about 16.

Analysts expect a dividend increase of 10% in 2018, giving a forecast yield of about 2.6%.

Demand for cruise holidays shows no sign of slowing. In my view Carnival remains a good way to play this sector, a view shared by my colleague Paul Summers. But personally I’m more attracted to a stock with a slightly broader focus.

This could be a better buy

My preferred travel sector stock is German group TUI AG (LSE: TUI), whose businesses include Thomson, TUI Cruises and six airlines, 300 hotels and tour operators in a number of northern European countries.

I think TUI’s diversity and scale gives the group an advantage when handling shifts in consumer demand. Although the businesses all appear to be separate enterprises from a customer’s perspective, they are able to benefit from centralised buying and planning. This allows the group to balance supply and demand for different types of holiday and, hopefully, generate consistent profits in changing market conditions.

This certainly seems to have worked in recent years. Profits from continuing operations rose by 95% to €910.9m last year. Interestingly, TUI’s return on capital employed (ROCE) has been stable at 9%-11% since at least 2012, giving an average of 9.8%.  In contrast, Carnival’s ROCE has varied between 4% and 10% over the same period, giving an average of only 6.5%.

Strong finances

TUI reduced its average net debt last year from €970m to €526m, giving a net debt-to-EBITDA ratio of just 0.35. That’s very low indeed, and suggests to me that cost control and cash generation are both strong.

This financial strength allows the group to pay out a greater share of earnings as dividends. TUI’s shares are also more modestly valued than those of Carnival and currently trade on a forecast P/E of 13.9, with a prospective yield of 4.3%. I see this as an attractive entry point.

The post One FTSE 100 4% yielder I’d buy ahead of Carnival plc appeared first on The Twelfth Magpie.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Carnival. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The last couple of years have been hugely uncertain for investors in easyJet (LSE: EZJ). The company has been hit hard by reduced demand for short-haul flights in Europe, with terrorism and economic difficulties hurting consumer confidence to a large extent. This caused the company’s earnings to decline by 22% last year, while its share price also disappointed when compared to the performance of the wider index.

However, with an improved strategy and a more positive outlook for the wider industry, the company is set to return to earnings growth next year. As such, now could be the perfect time to buy it for the long term.

Sound strategy

easyJet announced on Monday that it has entered into an agreement to acquire part of Air Berlin’s operations at Berlin Tegel Airport. It is consistent with its strategy of seeking to acquire top positions in Europe’s major airports, or number two positions to a legacy incumbent. The deal will see the company enter into leases for up to 25 Airbus A320 aircraft, as well as assets including slots and flying crews. The acquisition is due to complete in December for a purchase consideration of €40m, with the deal subject to regulatory approvals.

As well as the acquisition, the company also has growth potential from its decision to seek higher passenger numbers at a time when competition within the industry has been high. Although this may have caused some pressure on margins, the business is expected to deliver a rise in its bottom line of 17% in the next financial year. This puts it on a price-to-earnings growth (PEG) ratio of only 0.8. This suggests that it may offer good value for money even after its share price has soared by 37% in the last year.

Sector appeal

Of course, the travel and leisure sector appears to offer a number of sound investment opportunities. For example, TUI (LSE: TUI) is forecast to grow its bottom line by 27% in the current year and by a further 9% next year. This puts it on a PEG ratio of just 1.4, which indicates that it could post high share price returns over the medium term. In addition, it has a dividend yield of 4.1% versus 3.2% for easyJet. This could mean both stocks can help their investors to overcome the threat of inflation.

Certainly, TUI and its peers face some uncertainty in the near term. While demand may be on the up, the cyclical nature of the industry may mean it lacks the resilience of other sectors. However, with such low valuations on offer they appear to offer a relatively wide margin of safety at a time when the FTSE 100 is trading close to a record high. As such, now could be the perfect time to buy them ahead of improved share price performance in the long run.

The post Why I’d buy this growth stock and easyJet plc to hold forever appeared first on The Twelfth Magpie.

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Peter Stephens owns shares in easyJet. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Looking ahead, could there be more difficulties in the wider travel sector? Could these two stocks be worth buying or avoiding right now?

Growing profitability

In response to Monarch going into administration, online retailer of beach holidays On the Beach (LSE: OTB) released an update to investors on Monday. It stated that it is contacting customers that are currently in resort in order to assist with their return travel, while also contacting customers who are due to fly with Monarch in future.

On the Beach anticipates that there will be a one-off exceptional cash cost associated with helping customers to organise alternative travel arrangements, or to provide refunds. This could hurt its profitability in the current year, although the business has no exposure to Monarch Holidays bookings, since it only offered Monarch Airlines seat-only flight options.

Looking ahead, On the Beach is forecast to post a rise in its bottom line of 34% in the current year, followed by additional growth of 28% next year. While these figures may be revised downwards due to the one-off costs associated with Monarch, the overall investment picture for the business remains strong. It trades on a price-to-earnings growth (PEG) ratio of just 0.6 and this suggests that it could offer high growth potential in the long run.

Improving outlook

Also offering investment potential within the travel sector is TUI (LSE: TUI). The company is one of the largest travel businesses in the world and this could mean it is better able to survive further challenges within the industry. According to its most recent update, it is making impressive progress with its strategy and is forecast to post a rise in its bottom line of 33% this year, followed by additional growth of 9% next year. This puts it on a PEG ratio of just 1.2.

Clearly, the travel industry is highly cyclical and no company is completely immune to financial difficulties. However, with the European economy showing signs of strength after significant monetary policy stimulus, the prospects for the industry may be relatively encouraging. Furthermore, with TUI having a business model that is relatively diversified, its overall prospects may be impressive.

As well as its growth and value appeal, TUI also has upbeat income prospects. It has a dividend yield of 4.5% from a shareholder payout that is covered 1.7 times by profit. This suggests that it could be a popular income share for the long run.

The post What impact will Monarch’s collapse have on these 2 stocks? appeared first on The Twelfth Magpie.

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Peter Stephens does not own shares in any company mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

A solid year

Reporting on Thursday was energy, transmission and distribution company National Grid (LSE: NG). Its performance in the most recent financial year was solid, and showed that its strategy is performing well. It was able to invest for future growth, while also continuing to deliver savings. The business is becoming more efficient and the sale of the 61% of its UK Gas Distribution business could lead to a leaner and simpler organisation in future.

The sale of the business also means National Grid will return £4bn to its investors. Alongside this is a dividend of 44.27p, which puts it on a dividend yield of 4.2%. Since dividends are covered 1.4 times by profit, there appears to be scope to increase them by at least as much as inflation over the medium term. This could help to boost the company’s share price, with its price-to-earnings (P/E) ratio of 16.3 indicating that it offers fair value for money.

In fact, with a mix of a relatively high yield, growing dividends and a fair valuation, National Grid could post relatively high total returns in the long run. Its shares may have already risen 11% this year, but there could be more to come owing to its stable and consistent business model.

Riskier returns

While National Grid is a relatively stable income prospect, travel company Tui (LSE: TUI) offers less robust earnings. That’s at least partly because it is a cyclical stock which is highly dependent upon the performance of the wider economy. However, Tui is also in the process of restructuring, which means its near-term outlook is arguably riskier than it otherwise normally would be.

Despite this, it appears to be an attractive income stock. Tui yields 5% from a dividend which is covered 1.6 times by profit. It is expected to increase dividends by over 8% next year. This seems to be highly affordable, since the company is forecast to post a rise in its bottom line of 13% in 2018. More dividend growth could lie ahead as its expansion into new areas could act as a positive catalyst on its share price.

Clearly, the macroeconomic outlook is highly uncertain. However, Tui is a relatively well-diversified business which has a sound track record of growth. Therefore, in the long run its shares may be volatile, but their income return could be exceptionally high. As such, now could be the perfect time to buy a slice of it.

The post These FTSE 100 dividend stocks could be retirement cash cows appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of National Grid. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

At the end of the company’s second fiscal quarter (March), it made an underlying earnings before interest, tax and amortisation loss of €193.3m compared with €206.4m the year before, while revenue rose from €6.2bn to €6.7bn.

Even though these results might seem disappointing at first glance, they’re relatively attractive considering Tui’s earnings are usually weighted towards its second half. Tourism is a highly seasonal business, and Tui usually makes enough over the summer months to be able to keep the business ticking over during the quieter winter period.

Indeed, for the full year analysts are expecting the company to report a pre-tax profit of £790m on revenues of £15.2bn. Earnings per share of 88.8p are expected for the period, up 3% year-on-year.

However, for the 12 months ending 30 September 2018, analysts are expecting an even better performance from the company.

Better times ahead?

One-off events such as European terrorist attacks, Brexit, European elections and Tui’s merger have weighed on income this year but analysts believe earnings will recover as the impact of these events dissipates. Specifically, after growing 3%, this year, City analysts have pencilled-in earnings per share growth of 13% for the fiscal year ending 30 September 2018. Based on these projections, shares in the company are currently trading at a 2018 earnings multiple of 10.9.

This valuation seems attractive, especially when you take into account Tui’s earnings growth and income potential. Earnings growth of 13% on a forward earnings multiple of 10.9 implies a PEG ratio of 0.9 — a PEG ratio of less than one signals that the shares offer growth at a reasonable price. At the same time, shares in the firm support a dividend yield of just under 5%. Analysts expect the payout to increase by around 10% per annum. Based on this projection, next year the shares will offer a dividend yield of 5.3%.

Trends favour growth

If Tui hits City forecasts for growth by 2018, the company will have raised pre-tax profit by around 100% in four years, a highly impressive accomplishment. And it looks as if management expects this growth to continue with a booming Asian tourism market and trend among consumers to spend on experiences, not product. This trend shows in today’s figures with management reporting alongside the results that customer numbers are up 4% year-on-year. Lower demand for regions such as Turkey and Egypt have been offset by greater demand for Greece, Spain, Cape Verde, Cyprus and long-haul destinations such as the Caribbean.

Tui has uniquely positioned itself to take advantage of the rising demand for travel experiences by investing in multichannel offerings and focusing on customer satisfaction. The company offers unique travel experiences and has recorded a customer satisfaction rating of nearly 80%.

So overall, if you’re looking for a business that has all the hallmarks of a long-term growth and income champion, Tui appears to tick all the boxes.

The post Growth and income, this stock has it all appeared first on The Twelfth Magpie.

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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.