Tui shares fly to new heights after strong first quarter

Tour operator Tui jetted off to a strong start for its financial year with sales and underlying earnings both much improved on last year, sending its shares to fresh highs.

Turnover of €3.55bn in the three months ending 31 December was up 8.1% or 9.1% at constant currency rates, while losses before interest, tax, depreciation and amortisation of €24.9m was halved from the €60.3m loss a year ago. Just focusing on ongoing operations, EBITDA was positive and grew 86% to €55.4m.

Loss per share of €0.17 was slightly improved on €0.19 a year ago.

There was a €20m hit to EBITDA from the bankruptcy of Air Berlin's Niki business but this was balanced as there was no repetition of the €24m charge taken a year ago when Tuifly's German pilots all called in sick. Tui also benefited from a €38m gain on the disposal of three Riu hotels.

With the winter programme 88% sold with customers up 3% and average selling prices ahead 3%, current trading was said to be "progressing in line with our expectations", with summer already 35% sold. The UK is 41% sold with bookings in line with the prior year with prices ahead by 3%.

Tui said it was "well positioned" to deliver at least 10% underlying EBITA growth at constant exchange rates for full year 2018. "We are delivering our ambition - strong strategic positioning, strong earnings growth and strong cash generation, with underlying EBITA doubling between FY14 and FY201."

Demand was said to remain strong for the Western Mediterranean and Caribbean despite hurricane disruption and continues to improve for Turkey and North Africa.

Eight openings of Tui's own hotel brands have boosted winter 2017/18 and seven further openings are due for summer 2018, following the disposal of three Riu hotels in the quarter and five 'repositionings' under the Tui Blue and Tui Magic Life brands to come, while one resort hotel in Fuerteventura is undergoing renovation and will be closed for most of the financial year.

REACTION & ANALYSIS

Shares in Tui hit new record highs on Tuesday morning, up more than 4% to 1,665p.

This was a "robust" performance, said analyst Greg Johnson at Shore Capital, with seasonal losses down sharply and full- and future-year guidance reiterated.

He said underlying improvement was driven by hotels and cruise capacity of €11m and a €17m improvement in the tour operator segment, driven by a good performance in the Nordics, Belgium and Netherlands partly offset by lower margins in the UK. This was partly offset by increased losses from “all other segments”, most notably extended maintenance at Corsair.

Current bookings "appear strong" across most regions, albeit the UK is down 4% with load factors slightly ahead, against tough comparatives and a modest reduction in risk capacity, with ASPs ahead by 8% reflecting the high cost inflation in the UK market, with margins down on the year.

Johnson forecast 2018 underlying EBITA up 10% to €1,224m and earnings per share of €1.29.

"Tui continues to make good progress in delivering on its strategy to recycle capital into high quality growth channels of cruise ships and hotels, with a further delivery for its Tui Cruise JV announced for 2023. These channels continue to deliver strong profit growth with less seasonality. The tour operator segment continues to deliver a resilient performance with demand strong for most regions, albeit sterling related cost pressures continue to impact the UK, where margins and profits are likely to be down year-on-year."

Mike van Dulken, head of research at Accendo Markets, said shareholders are being comforted by strong demand for holidays in the northern and central regions, summer selling in-line with expectations and continued improvement in destinations such as Turkey and North Africa which had been shunned following acts of terrorism.

"Very reassuring too is the growing cruises segment faring so well with revenues and profits jumping in spite of much implement weather in H2 last year."

But what’s really driving the shares to fresh record highs with a 10% bounce from last week’s sell-off lows, he said, is likely to be lower debt and improved underlying profitability, if excluding one-offs, disposals/acquisitions, restructuring charges that were "awkwardly plentiful" in the latest period, leaving management comfortable even at this early stage to reiterate full year growth guidance.