Given the Italian cruise disaster, investors expected travel company shares to come under pressure.
Sure enough, the operator Carnival is down nearly 18% after it warned of the $90m impact of the shipwreck on its earnings.
But Tui Travel is heading in the other direction, up 5.5p to 167.2p after UBS added the company to its merger watch list and issued a buy recommendation with a 220p target. There has been speculation for some time that Tui's parent, Tui AG, could buy out the rest of the business, funded by a sale of Tui AG's Hapag-Lloyd container shipping division. While UBS admits the idea is not new, it believes the move could happen:
Although a potential buyout of 45.5% of Tui Travel has been in the public domain for some time, we see this as increasingly plausible, with Tui Travel's valuation offering considerable fundamental upside (37% to 220p price target) whilst price support should remain as we see low risk of Tui signalling disinterest.
Reasons: 1) Simplified group structure consistent with Tui AG's intention to move further into the travel leisure space, 2) to fully control cash flow of its fastest growing business, 3) it is a lower risk investment given Tui AG's visibility and board representation, 4) a Hapag-Lloyd exit would result in significant cash inflow.
.jpg?w=600)
