JP Morgan downgrades Thomas Cook, upgrades TUI

TUI was making the most of the bumper UK summer holiday booking season, but the same could not be said of rival Thomas Cook, JP Morgan said.

A 20.2% surge in UK holiday bookings during the month of February took fiscal year-to-date growth for the sector to 9.6%, with no signs of any deceleration ahead despite the fact that companies were heading into less favourable period for currency comparables.

However, only TUI, whose summer 2016 bookings were running 9% ahead appeared to be "fully capturing this opportunity", the broker said in a research note sent to clients.

Analysts led by Jaafar Mestari on the other hand expected rival Thomas Cook to continue to suffer from stronger competition in the lower price points - from the likes of Dart - and less favourable hedging (at prices that were 7% higher than those for TUI).

The UK represented nearly 40% of group earnings before interest and taxes for both TUI and Thomas Cook, they explained.

Indeed, in th ecsae of TUI spot booings were already running sufficiently high enough for the company to reach the broker´s estimates for fiscal year 2016.

However, an unexpected €36m currency headwind from the translation of UK profits led Jaafar and his team to lower their target price on the shares from 1,315p to 1,200p, even while upgrading their recommendation from 'neutral' to 'overweight'.

Shares of Thomas Cook were downgraded to from 'overweight' to 'neutral' and the target price lowered from 170p to 100p.

"Even factoring in management expectations of a “sustained recovery in consumer confidence”, we now model a flat growth scenario (vs ytd bookings flat/-5%). We think the stock unlikely to re-rate before revenue growth resumes."