Berenberg downgrades TUI to ‘hold’

Berenberg downgraded its stance on shares of TUI to ‘hold’ from ‘buy’ on Thursday, slashing the price target to 950p from 1,200p.

"In our view, TUI is making a strategic error in pursuing further avenues of growth rather than focus on its vertically integrated offering following the investments in hotels and cruises," it said. "This will leave opex and capex at inflated levels for the medium term, with around €200m more earmarked for next year and additional investment to follow.2

Despite its concerns, the bank said there was no escaping the "significant" value encased in the joint venture with Royal Caribbean Cruises and Riu, which when tied with the prospect of a windfall from Boeing, leave it neutral on the shares. However, Berenberg added that it would be a seller into strength from here.

Berenberg said excluding the impact of the grounding of the MAX, TUI has failed in its efforts to grow underlying earnings before interest, taxes and amortisation as planned.

"As the company embarked on its strategy after the buy-in of the TUI Travel minorities, it anticipated a 10% compound annual growth rate in underlying EBITA through 2020. This looks set to be wildly optimistic with a CAGR closer to 3% excluding the MAX impact, and half the target if adjusted for currency."

At 1155 GMT, the shares were down 2.5% at 953.80p.