Broker snap: Clouds disappearing for tour operators

3rd Apr 2012 10:12

With the results now in from Britain's two biggest package tour operators, UBS has declared that things continue to look sunnier for TUI Travel than they do for Thomas Cook.The broker said that the pair, along with Swiss rival Kuoni, all delivered trading updates which partially confirmed expectations of a collapse in volumes, but bookings proved more resilient than anticipated, with the best performances coming from the non-tour operator divisions."With the sector continuing to trade on a discount, increasing confidence in consensus expectations is likely to lead to a re-rating if companies continue to deliver at the operating level," UBS said.With TUI Travel, UBS says the detail is encouraging, and the group is benefiting from the mix effect. "The star performer within the divisions remains A&D, which maintained its +30% y/y [year-on-year] sales growth. Beyond the top-line trends, the company is comfortable that margin and cash flow performance remains solid, broadly in line with last-year's trends," the broker added. As for Thomas Cook, UBS's verdict is that the top line is good, but the costs are a problem."Thomas Cook delivered an encouraging update from a top-line perspective, with bookings and pricing both proving resilient. However, the key takeaway was in the EBIT [earnings before interest and tax] guidance, which at £200-210m was 20% below consensus and represented an EBIT margin of c2%, down from 3.1% in 2011. This suggests that cost control remains tough, and we reduce our EBIT forecasts by 18% and 7% for 2012/13," UBS revealed.JH