Tui is among the day’s main FTSE 100 fallers, following disappointment about the travel group’s dividend policy.
After last year’s merger between Tui Travel and its parent company Tui AG, it promised that its dividends would rise by 10% more than earnings per share growth in 2014/15 and 2015/16, provided it performed in line with expectations. Analysts took that as providing a new base for dividend growth, but the company has clarified this as just a one-off bonus. Morgan Stanley said:
We took the additional 10% growth in these years to be recurring, in other words to build a higher base off which future dividends would grow. This led to our previous dividend per share estimates of €0.56 in 2015 (+25%, i.e.€0.445 base plus 15% EBITA growth plus 10% boost), €0.65 in 2016 (+16%, i.e.€0.56 base plus 10% boost on €0.445 base plus 10% EBITA growth), and €0.74 in 2017 (+15%, i.e. €0.65 base plus 15% EPS growth).
The company has nowclarified that the 10% increases in 2015 and 2016 are a one-off “bonus”, so inother words they reverse, leading to the drops in our dividend estimates, andleading to lower dividend per share growth than we had expected in 2017.
We question the length of time it took for the company to clarify its dividend position, but...while disappointing, we see this as a communication issue rather than anything fundamental.
Morgan Stanley believes the company could afford to pay out on the original assumptions:
[Its] cash cover will exceed 2 times on our 2017 forecasts and beyond. Given investment opportunities seem relatively low returning (e.g. it has been buying aircraft, hotel and cruise assets), and the business could become even more asset light if it divested some of these assets, we think a cover below 2 times could be sustainable, suggesting a 2017 dividend per share of €0.70 or higher might be possible after all.
Even so, Tui shares are down more than 2.5% or 32p to £11.99.
