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The UK stock market has made a powerful comeback in the past month, with the FTSE 100 climbing 870 points since 7 April. As a result, many UK shares I’ve been eyeing up are on the rise!
I’ve been paying particular attention to stocks that could see a boost during summer. Think budget airlines and hospitality companies that bring in revenue from southern Europe.
Taking to the skies
I already own shares in easyJet but I’ve been eyeing up competitor International Consolidated Airlines (LSE: IAG) for some time. With offices registered in Madrid, the group operates major airlines that serve the south of Spain, like British Airways, Iberia, and Vueling.
During 2024, it brought in £3.56bn in operating profit, up 18.66% from the previous year. Most promisingly, its price-to-earnings (P/E) ratio remains low at only 6.46, suggesting far more room for growth. Adding to this, it reintroduced dividends last year at 9c per share, making for a yield of 2.7%. It also announced a €1bn share buyback programme to support dividends over the next 12 months.
While things are improving financially for the airline, it still has around £14.3bn in debt hanging over from Covid. That’s a fairly large amount for a company with only £6.79bn in cash and equivalents. Another recession or pandemic-like event could send it into serious financial trouble. Promisingly, its equity has increased by over £5bn in the past three years.
Fuel is another key factor to watch — as the company’s largest operating expense, any supply disruptions or price increases could hurt its margins. The company hedges fuel to mitigate this risk but it’s only a partial solution.
Overall, IAG looks to me to be on a solid route towards recovery. Barring the unlikely event of another pandemic-like recession, I think it has great prospects and is worth considering this summer.
Local short stays
With Brexit putting a dampener on EU travel, many Brits are looking closer to home for their holidays. Premier Inn owner Whitbread (LSE: WTB) stands to benefit from this trend. The hotelier is the UK’s largest hotel chain, with a growing footprint in Germany.
Its affordable pricing and widespread locations support resilient demand, making it the supplier of choice for domestic holidaymakers.
However, it does face some challenges. Rising wages and higher national insurance contributions are straining its margins. Plus, there’s a potential oversupply of options in the hotel market due to Airbnb and similar outfits, giving consumers a glut of cheap options. With the economy still in recovery mode, restrictive spending patterns could hurt its profits.
Latest results highlighted £2.92bn in revenue and earnings of £312.1m, resulting in a moderate net profit margin of 10.5%. Its P/E ratio is slightly above average at 19.5, which could limit growth. However, its potential for returns is boosted by a decent 3.54% dividend yield. It reintroduced dividends in 2022 after a Covid-era cut and rapidly increased them from 34.7p per share to 97p.
Whitbread’s financials aren’t as appealing to me as IAG’s but I like the speed at which it reintroduced dividends. That’s a promising sign of its operational efficiency and commitment to shareholders, which makes it a stock worth considering in my books.
