TUI third-quarter numbers ascend after late Easter

Travel operator TUI booked a strong third quarter performance, with sales and profits taking off during the early summer months, although it left its full year targets unchanged.

Boosted by Easter falling later this year and strong growth from cruises and hotels, the three months to 30 June saw turnover of €4.8bn, up 12.6% or 16.4% at constant currencies, enabling the Thomson Travel owner to record its first positive nine-month underlying operating profit as well as a significant improvement in operating cash flow.

TUI, saying it was seeing good demand for the rest of summer 2017 for hotels, cruises and holidays, reported a surge in underlying earnings before interest, tax, depreciation and amortisation of 33.7% to €317.3m for the quarter, which lifted the nine-month figure to €290m, a rise of 42% year on year.

Excluding the €38m positive effect of Easter and negative €7m effect of foreign exchange rates, the third quarter was still strong, with with 19% growth in like-for-like underlying EBITA.

Based on the strong results and trading for the remainder of the summer, management reiterated guidance of at least 10 % growth in underlying EBITA for the full year.

Furthermore, they expected turnover growth above the 3% previous guidance of around reflecting, with net debt by the end of September to be "broadly neutral", compared with previous net debt guidance of roughly €0.8bn, reflecting the receipt of proceeds from the Travelopia and Hapag-Lloyd AG share disposals.

Based on current foreign exchange rates, around €10m adverse impact on underlying EBITA compared with rates in the prior year.

"Our operational experience, scalable integrated model and balanced portfolio of destinations mean that we are well placed to deal with the challenges against the wider macroeconomic and geopolitical backdrop, and to deliver sustainable growth into the longer term."

Therefore guidance for the next two financial years of at least 10% underlying EBITA compound annual growth and will provide an update on growth strategy at the full year results presentation in December.

MARKET REACTION

TUI shares were essentially flat after an hour of trading on Thursday at 1,247p, having risen almost 12% since the start of July.

Broker Shore Capital felt these were a strong set of results and that booking patterns looked robust with the programme 88%-booked, in line with last year, with pricing and customer numbers consistent with the last update in May.

Reiterating guidance implies €1.1bn for the 2017 financial year, requiring a €50m improvement in the largest fourth-quarter period, "which given the booking patterns appears achievable", for full year EPS of €1.06.

"These results continue to demonstrate the success the group is having in transforming into a high quality content-led business, with cruising and hotels accounting for over half of profits," said analyst Greg Johnson, who believes the valuation is too low given that the combined hotels and cruise "could be worth approaching 20x earnings given the growth profile".