Tui Travel drew praise from the City after announcing a record increase in underlying profits of 20% to £589 million.
Douglas McNeill, equity analyst at Charles Stanley, said: “They are impressive results. Tui is doing all it promised and more.”
Although Tui’s share price fell on Tuesday, McNeill said the group had been a “star performer” for 18 months and the improved trading was already reflected in its valuation before the results announcement.
“The market was there ahead of the share price. It’s been clear for a while these results were going to be good. There was a strong trading update ahead of today in September,” he said.
McNeill dismissed concerns that Tui had included significant exceptional items in its results, something other industry observers had pointed out it had previously indicated it would not do once the group, formed from the merger of First Choice and Thomson, had become fully integrated.
These included a £188 million write down in its Specialist and Activity division and poor trading in its France source market due to disruption in key destinations.
“It’s better to have as much detail as you can. It’s better to have these items split out. It’s always the case when you are dealing with big international companies that there is something going wrong somewhere,” said McNeill. “As investors we are capable of interpreting results without being misled.”
McNeill said Tui has been performing well for years saying “they have not really put a foot wrong” and have coped very well with disruption in places like Egypt.
He added what has worked in Tui’s favour is that a number of surveys are pointing to the fact that consumer confidence is actually higher than many people think given headlines about the cost of living and stagnating wages.
He also said that the core package holiday business was holding up well which was helped by greater distribution efficiency and migration online. But he said Tui appears to have gauged the pace of migration online well, not going too fast for its customers, many of whom still want to transact or speak to someone offline. “You have to go as fast as your customer base will let you, not any faster,” McNeill said.
The City is taking notice of how Tui has started growing profits in its global accommodation wholesale business, McNeill saying analysts believe there could be big profits to be made in this sector in the years to come.
But investors were also reassured by strong forward booking for 2014 and Tui’s healthy balance sheet, said McNeill.
“That’s where Thomas Cook went wrong a couple of years ago. Tui’s balance sheet is really quite strong at the moment; they are well positioned to cope with short-term fluctuations.
“That’s not the biggest threat. The biggest threat is getting some of the bigger things wrong, it would be failing to make available a product that the consumers want to buy.
“There is a lot of competition around from dynamic packagers and budget airlines so they have got to make sure they are selling what consumers want to buy. Tui is in the kind of position Thomas Cook would like to be in in a few years. It’s flying along nicely at cruising altitude.”