Has the Covid-19 Made Travel and Leisure Stocks Cheap or Is It Too Early to Decide?

Covid-19 has caused mayhem in the global stock markets, and UK markets have also been in the limelight of this chaos. While all the sectors have been battered, the most affected stocks are from the Travel and Leisure sector, as investors turned bearish on these stocks, with their business coming to an abrupt halt. The drop in confidence further increased by the complete lockdown of the economy, due to which, the people of the country stopped engaging in leisure activities and are not travelling either. Complete lockdown means that people are restricted to venture out from their houses even for dining out and casual meetings, meaning that the Bars and Restaurants in the countries are also experiencing challenges. Food businesses have been generally considered to be recession-proof, but the situation is such that this industry is now in the middle of the covid-19 recession.

Are travel and tourism stocks really cheap?

UK Stock market has been consistently falling since the past over a month, with little to no signs of recovery in the near future. The biggest impact has been taken on by the travel and tourism sector. Airlines have suspended all of their flights, which means that they are suffering huge losses. Some of the biggest airline companies have slashed their guidance for earnings for Q1 2020 and FY 2020, as they believe that if the government doesn’t bail them out, it could prove to be the undoing of the UK Airlines business. Restaurant owners are also facing similar challenges, with some of them either being put under administration or closing down. Stock prices of the companies from the travel and Leisure sector on the London Stock Exchange have fallen off a cliff and are continuing to dive deep. In this situation, a very valid question arises – “Are these stocks available for cheap?” and even experts do not have an answer to this question, as in times like this, it is extremely difficult to determine the true value of such stocks, whose future performance remains volatile and unpredictable.

It is extremely difficult to determine as to when this lockdown would end, as the number of covid-19 cases in the country is still increasing every day. And hence, the existence and the survival of these companies are still on the line of fire. Companies from the Travel and Leisure sector of the UK that have done well historically, are under a liquidity crunch as all kinds of expenses keep on piling, with no respite still in sight in terms of revenue, and hence, even if one can pick up these stocks at a low price, there is no assurance that the price of these stocks will not drop further. At the same time, nobody can predict if a company will or would not do well, once this phase is over, and hence, analysts and experts from the sector are finding it very difficult to value these stocks correctly, both in the short as well as for long term.

Investors should focus on picking up stocks, especially from the travel and tourism sector, at their own discretion based on their risk-taking appetite and keeping the current market scenario in mind. One needs to be very conservative while picking stocks from this industry at this juncture so that any volatility in the market affect only a part of their portfolio.

As a reflection of the above-mentioned volatility from the sector, we are discussing some of the travel and tourism companies listed on the London Stock Exchange market.

Compass Group Plc

Compass Group Plc (LON:CPG) is a Travel and Leisure company based out of Chertsey, United Kingdom that is primarily engaged in providing food and support services in the country.

CPG Stock price performance

As at 12:30 P.M. Greenwich Mean Time on 8^th April 2020, at the time of writing of this report, Compass Group Plc's share on the London Stock Exchange stood at a price of GBX 1273.50, an increase of approximately 2.58 per cent or GBX 32.00, compared to the share price reported at GBX 1241.50 on the previous trading day. At the time of reporting, Compass Group Plc's market capitalisation was reported to be GBP 19716 billion in relation to the current trading price of the share of the company.

In the previous one year, since April 08, 2019, when the share was trading at a price of GBX 1807.00 at the time of market close, the Compass Group Plc share had yielded a negative return of around 29.52 per cent in value. The share of the company also yielded a negative return of approximately 13.78 per cent in value in the previous month since market close on March 09, 2020, when the share price was reported to be GBX 1477.00 per share. The firm's share beta stood at a value of 1.09 when this report was being written.

Carnival Plc

Carnival Plc (LON:CCL) is a company operating out of Southampton, in United Kingdom and is one of the world’s biggest leisure travel services provider and cruise operator.

CCL Stock price performance

As at 12:35 P.M. Greenwich Mean Time on 8^th April 2020, at the time of writing of this report, Carnival Plc's share on the London Stock Exchange stood at a price of GBX 880.80, an increase of approximately 0.69 per cent or GBX 6.00, compared to the share price reported at GBX 874.80 on the previous trading day. At the time of reporting, Carnival Plc's market capitalisation was reported to be GBP 1.596 billion in relation to the current trading price of the share of the company.

In the previous one year, since April 08, 2019, when the share was trading at a price of GBX 3931.00 at the time of market close, the Carnival Plc share had yielded a negative return of around 77.59 per cent in value. The share of the company also yielded a negative return of approximately 47.37 per cent in value in the previous month since market close as on March 09, 2020, when the share price was reported to be GBX 1673.50 per share. The firm's share beta stood at a value of 1.99 when this report was being written.

InterContinental Hotels Group Plc

InterContinental Hotels Group Plc (LON:IHG) is a hospitality company from Denham, United Kingdom and engages in the management and operations of various hotel chains and some of the biggest hotel brands in the country.

IHG Stock price performance

As at 12:40 P.M. Greenwich Mean Time on 8^th April 2020, at the time of writing of this report, InterContinental Hotels Group Plc's share on the London Stock Exchange stood at a price of GBX 3397, a decline of approximately 1.88 per cent or GBX 65.00, compared to the share price reported at GBX 3462.00 on the previous trading day. At the time of reporting, InterContinental Hotels Group Plc's market capitalisation was reported to be GBP 6.323 billion in relation to the current trading price of the share of the company.

In the previous one year, since April 08, 2019, when the share was trading at a price of GBX 4759.50 at the time of market close, the InterContinental Hotels Group Plc share had yielded a negative return of around 28.63 per cent in value. The share of the company also yielded a negative return of approximately 11.77 per cent in value in the previous month since market close on March 09, 2020, when the share price was reported to be GBX 3850.00 per share. The firm's share beta stood at a value of 1.32 when this report was being written.

Flutter Entertainment Plc

Flutter Entertainment Plc (LON:FLTR) is an Irish company that provides gaming and gambling services to people of both Ireland and the United Kingdom.

FLTR Stock price performance

As at 12:45 P.M. Greenwich Mean Time on 8^th April 2020, at the time of writing of this report, Flutter Entertainment Plc's share on the London Stock Exchange stood at a price of GBX 7,374.00, a decline of approximately 0.35 per cent or GBX 26.00, compared to the share price reported at GBX 7,400.00 on the previous trading day. At the time of reporting, Flutter Entertainment Plc's market capitalisation was reported to be GBP 5.8 billion in relation to the current trading price of the share of the company.

In the previous one year, since April 08, 2019, when the share was trading at a price of GBX 6128.00 at the time of market close, the Flutter Entertainment Plc share had yielded a positive return of around 20.33 per cent in value. The share of the company also yielded a negative return of approximately 9.32 per cent in value in the previous month since market close on March 09, 2020, when the share price was reported to be GBX 8132.00 per share.

Comparative Stock Price Performance of CPG, CCL, IHG and FLTR

(Source: Thomson Reuters, on 08-04-2020 before the closing of the London Stock Exchange Market)