Tui AG's shares have been accelerating along the runway following third-quarter results that revealed a strong underlying performance through a period marred by the Tunisia terrorist attack. Management says its "highest priority" remains supporting its customers, their families and its staff, and its swift reaction to the tragedy seems to have reduced the risk of long-term fallout. The tour operator suffered a €10m (£7.1m) dent to operating profits because of the Tunisia attack, but that was hardly financially overwhelming in the context of €194m in total operating profits for the quarter.
Trading was solid, with group sales up 6 per cent year on year at nearly €5.1bn. About 86 per cent of its summer holidays have been sold - in line with last year's level - while bookings and average selling prices have risen 2 per cent on the prior year. The company said it was "confident" of delivering growth in operating profits of between 12.5 per cent and 15 per cent this financial year, even without positive currency effects (expected to be in the region of €60m this year).
Further along, €50m of costs will have been taken out of the operating base from 2016-17, with most of the one-off costs for this now paid. The scale of the combined group - the product of last year's merger between British Tui Travel and German Tui AG - is also likely to bring operational efficiencies.
JPMorgan Cazenove says...
Overweight. We view the now fully integrated Tui Group as easily capable of delivering on its target of "at least 10 per cent" operating profits growth by 2018. Our base case is 12 per cent and the bull case 16 per cent. More than three-quarters of this growth should come from its source markets, such as the UK and various regions in Europe, its business hotel booking division, cost savings and its specialist travel division. The remainder of the growth we expect to come from its hotels and cruises, but this is partly unproven and faces the risks of accelerated capital spending. We are expecting net profits of €348m in the full year to 30 September, equating to EPS of 95¢, up from €105m in FY2014.
The Share Centre says...
Buy. We were surprised at the market's reaction in respect of Tui's shares after the Tunisia tragedy, because it represents only a small part of the group's global business. We have had the group on a buy for some time. In the long term we believe there are strong benefits to the merger as it will make the business more streamlined and efficient. The valuation is also still compelling. Using data from Factset, we expect earnings growth for the current year of 17.5 per cent, 19 per cent for FY2016 and 12 per cent for FY2017, with 42 per cent growth in the dividend this year.
