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

Barclays upgraded Tui AG to "overweight" with a price target of €11, implying a 71.6% upside, citing improved earnings momentum, valuation, and a stronger post-pandemic financial position. The upgrade is underpinned by a revised valuation model incorporating discounted cash flow analysis, projecting a decline in net debt to €1.15 billion in fiscal 2025 and a return to dividend payouts. Despite reservations about Tui's long-term strategy, Barclays highlights the company's leading position in a thriving travel market and its deleveraged balance sheet.

Analysis

Tui AG shares experienced a significant rally, jumping over 4%, following an upgrade by Barclays from "underweight" to "overweight" and a substantial increase in the price target to €11 from €7.70. This new target implies a potential 71.6% upside from Tui's closing price of €6.41 on June 18, reflecting Barclays' heightened confidence in the company's earnings momentum, valuation, and improved post-pandemic financial health, based on a revised three-stage discounted cash flow model. Key financial projections underpinning this optimism include a forecasted reduction in net debt to €1.15 billion in fiscal 2025 from €1.64 billion in 2024, leading to a net debt-to-EBITDA ratio decline from 0.8x to 0.5x in 2025, and further to 0.2x by 2027. Return on equity is expected to improve to 59.5% in 2025 from 45.2% in 2024, while adjusted EBIT is projected to grow 9% year-on-year to €1.42 billion in 2025, with the EBIT margin expanding to 5.8%. Barclays anticipates Tui's earnings per share will reach €1.10 in 2025, bringing the price-to-earnings ratio down to 5.8x from 6.5x, and notes a forward EV/EBITDA multiple of 2.5x for 2025. Despite expressing reservations about Tui's long-term strategy to become a "global curated leisure marketplace" and specific initiatives like its Ryanair partnership, Barclays highlights that Tui, as the last major pan-European tour operator, benefits from a deleveraged balance sheet, strong travel demand, and valuable assets. A dividend resumption is also on the horizon, projected at €0.35 per share in 2025, translating to a 5.5% yield.

Key Decisions for Investors

• Given Barclays' substantial price target upside of 71.6% and strong conviction in Tui's financial recovery, investors could view the stock as an attractive investment, supported by projected earnings growth, significant balance sheet deleveraging, and appealing valuation metrics such as a 2025 P/E of 5.8x and EV/EBITDA of 2.5x.
• The anticipated reinstatement of dividend payments in 2025, offering a projected 5.5% yield, adds to the total return potential, though investors should closely monitor the company's execution on its financial targets and debt reduction plans.
• While Barclays raises some concerns about Tui's long-term strategic direction, the current positive operational momentum, strong market position in a thriving travel sector, and improving financial health appear to outweigh these for now, suggesting a potential re-evaluation of the stock by the market.