Barclays upgrades Tui to “overweight,” shares jump over 4% on outlook boost

Investing.com -- Tui AG (ETR:TUI1n) shares jumped more than 4% after Barclays (LON:BARC) upgraded the stock to “overweight” from “underweight” and raised its price target to €11 from €7.70, citing a more constructive view on earnings momentum, valuation, and the group’s post-pandemic financial position, in a note dated Friday.

The upgrade follows a full rebuild of Barclays’ valuation model, which now uses a three-stage discounted cash flow method. 

The analysts said the revised price target implies a 71.6% upside from the stock’s closing price of €6.41 on June 18.

Despite a cautious view on Tui’s long-term strategic direction, Barclays pointed to the company’s earnings momentum, reduced debt levels, and a more resilient demand environment for package holidays. 

"Tui is not perfect," they wrote, "yet it is the last surviving pan-European tour operator and has deleveraged its post-pandemic balance sheet."

The report noted Tui’s financial metrics have improved materially since the pandemic. 

Net debt is projected to decline to €1.15 billion in fiscal 2025 from €1.64 billion in 2024, with net debt-to-EBITDA falling to 0.5x in 2025 from 0.8x a year earlier. 

Barclays estimates further improvement to 0.2x by 2027. The return on equity is forecast to rise to 59.5% in 2025, up from 45.2% in 2024.

Tui’s adjusted EBIT is forecast to grow to €1.42 billion in 2025, up 9% year-on-year. The EBIT margin is expected to widen to 5.8% from 5.6%. 

The earnings per share forecast stands at €1.10 in 2025, compared to €0.98 in 2024. The price-to-earnings ratio is expected to drop to 5.8x in 2025 from 6.5x in the prior year. Tui’s forward EV/EBITDA multiple stands at 2.5x for 2025.

Barclays’ estimates are slightly ahead of consensus on EBIT for 2025 but remain below consensus on net profit, citing higher assumed interest expenses. The analysts forecast pre-tax income of €1.02 billion in 2025, with net income of €569 million.

Tui’s dividend is projected to resume in 2025 with a payout of €0.35 per share, implying a yield of 5.5%. The analysts expect that to rise to €0.39 by 2027.

The report flagged that while Tui’s current strategy to become a “global curated leisure marketplace” is unconvincing, the group continues to benefit from strong travel demand and has valuable assets in hotels, cruises, and destination experiences. 

Barclays raised questions about Tui’s partnership with Ryanair and its push into dynamic packaging, but said these concerns do not undermine the overall investment case.

Tui’s market capitalisation stood at €3.25 billion with a free float of 87.5% and an average daily trading volume of 4.1 million shares, according to the report.

“Travel is thriving and Tui has leading assets in an industry that peers are battling to enter,” the analysts wrote. 

“We do not think you need to believe in the company’s declared strategic direction to be constructive on the shares.”