Broker tips: TUI, Countryside Properties, Hammerson

TUI AG’s ‘buy’ rating and target price of €22.60 (£17.85) were left unchanged by Nomura after the company said summer holidays were higher than last year.

The group said it is was on track to meet its target of growing core earnings by at least 10% this year as it reported a 2% increase in summer bookings.

Tui sold 47% of its summer holiday programme, in line with last year, and at 1% higher average selling prices, meaning revenue from the programme has been lifted 3%.

“This compares favourably with Thomas Cook, which last week reported bookings down 5% year-on-year and pricing unchanged, demonstrating, in our view, a superior product (differentiated) and its proven ability to quickly reshape programme in the light of geopolitical events,” Nomura said.

The cruise arm was said to be delivering continued growth, driven by strong demand for the latest in the Mein Schiff cruise ships, which is due to be launched this July.

The first half of the year has been focused on the winter programme, which has closed out almost fully sold at 95%.

“We forecast 14% earnings per share compound annual growth rate (2015-18), which is well supported by structural growth at its market-leading tour operator division, its cruise division expansion plans, its hotel roll-out programme and merger synergies,” said Nomura.

“We therefore retain our ‘buy’ rating.”

Peel Hunt initiated coverage of Countryside Properties at ‘buy’ with a 290p price target.

It said Countryside provides investors with an opportunity to invest in the specialist growth area of Partnership housing in London and the North West.

“This business is differentiated, generates a very high return on capital employed and has significant barriers to entry. We also expect its traditional housing business to double profits in the next two years,” the brokerage said.

It noted the Partnership housing business has a low capital footprint and significantly lower risk than traditional housing businesses due to the nature of contracts with local authorities, where Countryside has established long-standing relationships.

High barriers to entry have delivered margins not that far below sector averages which in turn drives impressive returns on capital, Peel said.

“With a growing pipeline of secured contracts, we are forecasting a c70% increase in revenue and a c90% rise in operating profits in the next three years.”

Peel added that Countryside was set to grow revenues and profits significantly in the next three years, comfortably ahead of the sector average.

Credit Suisse started Hammerson at ‘outperform’ with a 630p price target and Intu Properties at ‘underperform’ with a 300p price target as it initiated coverage of the European retail REIT sector.

The bank said Hammerson was its preferred retail REIT in the UK due to its higher quality portfolio and balance sheet than nearest peer Intu, despite similar NAV discounts, and its lower earnings multiple.

In addition, it said higher growth potential in Ireland and premium outlets should drive outperformance.

CS highlighted Hammerson’s unique exposure among European REITs to designer retail outlets across Europe which totals 14% of the portfolio, adding that Bicester Village in Oxfordshire is still one of the most productive retail locations in the UK.

It also pointed to a significant development pipeline of ground-up schemes and extensions, most notably two suburban London schemes: Croydon in South London and Brent Cross in North London

As far as Intu is concerned, it said the company’s portfolio includes a number of old, large centres with high capex requirements and limited upside potential given rents have been managed well over time, leaving relatively high occupancy cost ratios.

It also pointed to persistently weak like-for-like net rental income growth due to a lack of pricing tension with retailers, and a weaker balance sheet than peers.

“Intu has an interest cover of just 1.9x compared to the 3.3x we calculate for Hammerson,” CS said.