The market reacts to 13% profits decline.
Shares in TUI took a nosedive after turbulent Q3 results
- TUI reported big increase in earnings for first nine months but market disappointed with profit fall in Q3
- Tourism group reiterated full year guidance despite foreign exchange rates, including drop in Turkish lira acting as tailwinds
- The Share Centre recommends TUI as a ‘buy’ due to long term growth potential
Global tourism group TUI today reported a big increase in earnings for the first nine months of its financial year. Underlying profits were up from €7.3m to €34.8m although the market seems to be focussing on a decline in profits during the third quarter of 13% to €193.4m. Indeed, the market’s early response appears to be quite negative, with a 9% drop in the shares.
Elsewhere, investors should appreciate that turnover in the third quarter was up 5% with growth in holiday experiences and cruises, but earnings for the period were generally lower than expected and the air traffic control strikes in France cost the company €13m. TUI has ordered a further two cruise ships and reiterated its forecast of a 10% rise in earnings for the full year. Worth noting is that the company does expect an adverse impact from foreign exchange rate changes of €35m, partly due to the sharp drop in the Turkish lira this year.
There is still some good growth in the business, but the fourth quarter will now be even more important than ever for the company this year. Due to the long term growth potential, the healthy dividend and reducing competition in the sector, we continue to recommend the shares as a 'Buy' for medium risk investors seeking a mixture of growth and income.
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