City analyst boost for Thomas Cook and Tui

City analyst boost for Thomas Cook and Tui

Tui and Thomas Cook both received a boost from the City yesterday as analysts at Berenberg bank upgraded its recommendations on both stocks.

Shares in the big two European travel group have been hit following a string of terror attacks over the past year in Egypt, Tunisia and Turkey in addition to the Paris bombings in November.

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

But Berenberg said: “Despite our concerns about the geopolitical environment and the structural challenges faced by the two big tour operators, we still see a supportive economic environment and robust consumer confidence, which leaves us feeling sure that the European consumer will not be put off the traditional summer holiday.”

It said Thomas Cook shares had 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 to 'buy' from 'hold,’ pointing out that the Thomson and First Choice parent 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.

Berenberg analysts added: "In our view, Tui continues to deliver a superior performance within its tour operation business.

"This is reflected in a stronger top-line evolution and also it has had a superior cash generation for shareholders. When we link this to the hotels and cruises businesses within Tui, we believe that the shares will see a renaissance through 2016."

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