TUI, Thomas Cook rally on Berenberg upgrades

The bank said it was retaining a cautious view about the tour operators industry, which it reckoned will need to continue to extract efficiencies to stay competitive with the associated one-off restructuring costs.

“However, following the escalation in geo-political risks recently, we feel that the underperformance is overdone as we still expect the European consumer to go on holiday.”

The bank lifted Thomas Cook to ‘hold’ from ‘sell’ and nudged up the price target to 105p from 100p.

It said the shares have underperformed the market by 24% over the past 12 months and 22% year-to-date due to a mix of structural challenges and currency.

“While we believe that the structural challenges remain fierce, we have seen a positive currency swing, which in our view will mitigate further downside risk this year. When this is added to the prospect of some financial restructuring over the next 12 months and the reintroduction of a dividend, we are upgrading our recommendation.”

It upgraded TUI AG to ‘buy’ from ‘hold’ and lifted the price target to 1,300p from 1,275p.

Berenberg pointed out that TUI has underperformed the market by 5.2% and the leisure sector by 13% over the last 12 months as concerns over the geopolitical situation have worsened.

While it continues to believe that the tour operator business model is challenged, it said the steps taken by TUI to offset the geo-political issues should be supportive on the basis that consumers will still go on holiday.

“When we link this to the Hotels and Cruises businesses within TUI, we believe that the shares will see a renaissance through 2016.”

At 0923 BST, Thomas Cook shares were up 2% to 94.95p while TUI shares were up 3.2% to 1,074p.