Merger murmurs hands TUI Travel a needed day in the sun

Published:  18 Jan at 10 AM

TUI Travel made its way into the spotlight at the start of the week after UBS hit the holiday firm with a "buy" rating that came with a 220p target price.
The broker decided to add TUI to its expansive merger watch-list in the light of recent speculation that TUI AG, its parent company, has been looking to buy out the 45.5 per cent share of the business that it doesn't already own. Shares rose 3.2 to 164.9p after publication of the note, It read that although a potential TUI Travel buy out has assumed a position in the public domain over the last few months, TUI Travel's valuation offers considerable fundamental upsides whilst price support must remain as a low risk of signalling disinterest continues.

UBS initiated coverage on one of TUI's beleaguered rivals, Thomas Cook, which it gave a "neutral" rating. UBS said that it preferred TUI due to its developed mix of products and noticeably stronger balance sheet.

The broker's bullish note came in the midst of muted trading right across the FTSE 100 on Monday, which remained flat throughout most of the day while traders digested the decision from credit-rating giants Standard & Poor's to downgrade nine member-countries of the eurozone on Friday. Additionally, US markets were closed so that Martin Luther King day could be celebrated.

Chris Beauchamp, one of IG Index's leading market analysts, said that although it would cause immense pain for some to concede, it has to be admitted that life can become quite boring without the presence of the Americans as the absence of US traders yesterday resulted in the markets experiencing a distinctly lacklustre time.