Tui Travel tipped as a “Buy” despite global unrest hitting bookings

9th February 2016

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As TUI reports its Q1 results, Graham Spooner, investment research analyst at The Share Centre, explains what they mean for investors…

This morning, TUI Travel said that bookings had taken a hit as holiday makers move away from destinations such as Turkey and North Africa as a result of continuing unrest. Travellers appear to be opting for places such as Spain and the Canary Islands as a replacement and even travelling further afield with long haul bookings in the UK up 16% over the winter period. Despite this news, investors should acknowledge that there was a 7.2% improvement in first quarter earnings and a 5.4% rise in turnover. It is also worth noting that travel companies tend to make the majority of their money in the second half of the year.

After the merger in 2014 between TUI Travel and TUI AG, the group became Europe’s largest tour operator which should lead to cost savings and a wider range of holiday offerings for customers. Whilst the geopolitical unrest has naturally had an impact to the company, investors should note that it has been partly offset by its business mix across the UK and northern Europe, courtesy of brands such as First Choice, Unijet, Thomson, Sunquest and Airtours. It is worth pointing out that bookings in the UK are up 9% for the summer.

Current trading in the important first few months of the year, is so far in line with expectations. Furthermore, the group still expects 10% growth in earnings for the year. Despite the shares being down 2% on opening, performance has been fairly resilient over the last year. Subsequently, we continue to recommend TUI Travel as a ‘buy’ for medium risk investors with a balanced portfolio. However, in the current climate, we would suggest investors drip feed into the stock.

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