TUI Travel's Q3 Profit Jumps 21 Percent

August 8, 2014

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TUI Travel on Friday reported a 21 percent jump in third quarter profit, powered by sales of higher-margin holidays.

TUI Travel's underlying operating profit on a like-for-like basis was GBP£92 million (USD$155 million) in the three months to June 30 compared to GBP£76 million in the same period last year.

The British company is currently in talks with its 55 percent owner, Germany-based TUI, regarding a merger deal worth around GBP£4.4 billion (USD$7.5 billion) which would create the world's largest leisure tourism group.

The pair have until September 19 to announce a formal merger proposal.

TUI Travel is targeting 7 to 10 percent growth in underlying operating profit on a constant currency basis for the 12 months to the end of September, but takeover rules prevented it from re-affirming guidance on Friday.

"I can't comment in terms of a forecast for this year because we're in an offer period and I've got restrictions in terms of the takeover code," chief executive Peter Long told reporters.

He said that there was "no business reason" for the absence of guidance in the statement.

TUI Travel and TUI announced a plan to merge in an all-share, nil-premium deal in June. Investors had long expected such a tie-up since TUI Travel was created in 2007 from the merger of Britain's First Choice and the travel business of TUI.

The two companies last held merger talks in 2013 but a deal collapsed after TUI said an offer would not make sense given their share prices at the time.

Analysts at Numis said the current merger plan did not look attractive from the point of view of an independent TUI Travel shareholder given the underperformance of TUI's share price and that meant either a better deal could emerge or that the merger could be scrapped.

"Together with today's encouraging trading update, this makes us more positive on TUI Travel," Numis's Wyn Ellis said.

TUI shares have lost 14 percent of their value since the day before the merger talks were announced, under-performing TUI Travel's stock which is trading 9 percent lower.

Long said that TUI Travel's strong performance was being driven by its "unique" holiday concept.

The higher margin holidays accounted for 71 percent of summer bookings this year and allow TUI Travel to differentiate itself from competitors who sell more commodity-like holidays, Long explained, adding that this was a particular advantage given that the market this year was more competitive than last.