August 8, 2014 / 9:42 AM / 3 years ago

UPDATE 1-TUI Travel on track after Q3 profits jump 21 pct

* Q3 profit 92 mln stg from 76 mln stg last yr

* Remains in talks with TUI AG over merger

* Shares trade down 0.8 pct (Adds CEO comments, analyst comment, share price)

By Sarah Young

LONDON, Aug 8 (Reuters) - TUI Travel, Europe’s biggest tour operator by revenues, looks on track to meet its annual profit growth goal after a 21 percent jump in third quarter profits, powered by sales of higher-margin holidays.

The British company is currently in talks with its 55 percent owner, Germany-based TUI AG, regarding a merger deal worth around 4.4 billion pounds ($7.5 billion) which would create the world’s largest leisure tourism group.

The pair have until Sept. 19 to announce a formal merger proposal.

TUI Travel is targeting 7 to 10 percent growth in underlying operating profit on a constant currency basis for the 12 months to the end of September, but takeover rules prevented it from re-affirming guidance on Friday.

“I can’t comment in terms of a forecast for this year because we’re in an offer period and I’ve got restrictions in terms of the takeover code,” chief executive Peter Long told reporters on a call.

He said that there was “no business reason” for the absence of guidance in the statement.

TUI Travel and TUI announced a plan to merge in an all-share, nil-premium deal in June. Investors had long expected such a tie-up since TUI Travel was created in 2007 from the merger of Britain’s First Choice and the travel business of TUI AG.

The two companies last held merger talks back in 2013 but a deal collapsed after TUI AG said an offer would not make sense given their share prices at the time.

Analysts at Numis said the current merger plan did not look attractive from the point of view of an independent TUI Travel shareholder given the underperformance of TUI AG’s share price and that meant either a more favourable deal could emerge or that the merger could be scrapped.

“Together with today’s encouraging trading update, this makes us more positive on TUI Travel,” Numis’s Wyn Ellis said, switching to an “add” recommendation from “hold”.

Shares in TUI AG have lost 14 percent of their value since the day before the merger talks were announced, underperforming TUI Travel’s stock which is trading 9 percent lower.

TUI Travel shares traded down 0.8 percent to 352.75 pence at 0914 GMT, slightly lagging Britain’s bluechip index which was down 0.7 percent.

Long said that TUI Travel’s strong performance was being driven by its “unique” holiday concept.

These higher margin holidays accounted for 71 percent of summer bookings this year and allow TUI Travel to differentiate itself from competitors who sell more commodity-like holidays, Long explained, adding that this was a particular advantage given that the market this year was more competitive than last.

TUI Travel on Friday reported underlying operating profit on a like-for-like basis of 92 million pounds ($155 million) in the three months to June 30 compared to 76 million pounds in the same period last year. ($1 = 0.5950 British Pounds) (Reporting by Sarah Young, Editing by Paul Sandle/Ruth Pitchford)

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