TUI shares rise on strong Q3 earnings beat

Investing.com -- TUI Group's (ETR:TUI1n) shares jumped on Wednesday following the release of its third-quarter earnings report, which exceeded expectations. 

At 4:08 am (0808 GMT), TUI Group was trading 4% up at €5.768.

The company reported revenues of €5,787.0 million, in line with consensus estimates but slightly below Jefferies' forecast of €5,790.3 million. 

However, the real highlight was the underlying EBIT, which came in at €231.9 million, marking an impressive 11% beat compared to consensus expectations of €207.6 million and Jefferies’ estimate of €185.3 million. 

Net debt has also improved significantly, declining from €3.1 billion in Q2 2024 to €2.1 billion.

The trading environment has been encouraging, with summer bookings showing a positive trend. Bookings have accelerated, counterbalancing a slight decline in pricing from the previous quarter. 

Winter booking forecasts suggest a stable outlook, with robust pricing levels expected to persist. For the upcoming quarter, hotel performance remains strong, with an anticipated 10% increase in average daily rates (ADRs) despite a modest 1 percentage point rise in occupancy rates.

Full-year guidance remains unchanged, with TUI projecting at least 10% sales growth and a 25% increase in underlying EBIT. Jefferies' forecasts align closely, with expected sales growth of 12% and EBIT growth of 32%, reaching a total EBIT of €1,279.3 million. 

Mid-term targets for 2025/26 remain consistent, aiming for 7-10% underlying EBIT growth and maintaining net leverage "strongly" below 1.0x, with a return to pre-pandemic credit rating levels.

For the summer of 2024, TUI has seen robust booking performance, with 88% of the programme sold compared to 60% previously. Year-on-year bookings have increased by 6%, up from 5% previously, aided by improved conditions in the German market. 

The UK market has also performed well, with bookings up 5% and the season 90% sold. Conversely, average selling prices (ASPs) have risen by 3%, a slight decline from the previous 4% growth.

Winter 2024/25 bookings show that 32% of the programme is sold, indicating stable demand. Other markets have reported an encouraging start to the season.

TUI Group’s valuation remains attractive, as per Jefferies, trading at a multiple of 5.8x FY24E PE, compared to a historical average of 11.8x. Despite this, the company faces reinvestment risks across its key business units, and in the current macroeconomic environment, investors are advised to consider share winners. 

For comparison, Jet2 is noted to trade at a similar 40% discount to historical levels, presenting a potentially better-invested alternative with a clearer growth trajectory.