TUI cruises higher as Credit Suisse upgrades shares

Travel operator TUI was upgraded to a 'neutral' rating by Credit Suisse from its previous 'underperform' given a "material valuation shift" in the shares relative value to rivals.

The premium to rival Thomas Cook has fallen to the lowest since the 2014 merger of TUI's UK and German arms, while the Swiss bank also sees a reduced risk of disappointment over full-year earnings per share.

Furthermore a positive mix effect is seen from TUI growth of its cruise and hotels business, with added forex benefits, which all adds to strengthen the sum-of-the-parts valuation.

An unchanged full-year EPS forecasts following the third quarter results masks major divisional changes again, with Source Markets downgraded 6% reflecting UK pressures, with a December strategy update on this business awaited "with keen interest".

"We see Thomas Cook as highly focused on improving its equivalent business as discussed in our June note but don't see such compelling evidence from the TUI team right now."

But this is offset in forecasts by a 13% uplift from hotels and 4% for cruises.

"With EPS unchanged and growth trending ahead of 2017 guidance the risk of near term disappointment has reduced."

TUI's target price was raised by the CS analysts to 1,300p from 1,100p to reflect peer re-ratings and currency moves.