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Coronavirus hits travel shares but TUI sell-off “overdone” says HSBC

Shares in the Anglo-German tour operator are pricing in a mid-teens decline in bookings


Travel companies are likely to be the sector most affected by the coronavirus but TUI AG (LON:TUI) shares have been oversold, analysts at HSBC said, especially after the collapse of Thomas Cook.

During the SARS epidemic, travel volumes declined heavily in several regions but while tour operators have low levels of customer sourcing from China, “concerns are clearly being priced in for a weaker booking environment”.

READ: TUI trims dividend policy as profits dip on Boeing MAX grounding

Furthermore for TUI, the market’s analysis is being “muddied” by concerns about the impact from the Boeing 737 Max problems, HSBC’s analysts said, believing investors “should look past” this.

Seeing the Anglo German tour operator’s current share price, which closed overnight at 815.8p, as implying a “mid-teens” fall in bookings, the analysts upgraded to a ‘buy’ recommendation from ‘hold’ and kept its target price at 1,040p.

Ahead of a first-quarter update in mid-February, the key focus is expected to be around the timing of the 737 Max return and how bookings have gone for summer 2020 holidays in key source markets.

TUI said in December that recent trading momentum had been positive and that it was expanding its summer 2020 capacity by 14%, while recent market data suggests pricing of holiday packages has picked up as capacity was reduced by the downfall of Thomas Cook.

The analysts said they were upgrading the stock “as we believe the underlying trading momentum for holiday booking is more positive…the shares have fallen circa 10% since the company reported its FY19 numbers and we believe this is overdone, especially given recent news from smaller, private operators commenting that booking momentum for 2020 is improving”.

Quick facts: TUI AG


Price: 311.1 GBX

Market Cap: £3.42 billion

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