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Stock of the week: TUI

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Ian Forrest, investment research analyst at The Share Centre, explains why he’s picked TUI as stock of the week.

Earlier this month, holiday giant TUI reported an increase in earnings for the first nine months; underlying profits were up from €7.3m to €34.8m although on the day the market focused more on the decline in profits during the third quarter of 13% to €193.4m. Indeed, the market’s response to the news was quite negative, with a 9% drop in the shares.

Despite taking a hit due to a trio of unexpected events – the summer heatwave in northern Europe, air traffic control strikes and the devalued Turkish currency, the group reiterated its full-year guidance. The FTSE 100 company stated it remained on track to post double-digit earnings growth for 2018.

Nonetheless turnover increased by 5% and there was growth in holiday experiences and cruises, assisted by early bookings. Demand for cruises remains very strong and two further cruise ships have been ordered. The acquisition of Destination Management from Hotelbeds Group should also boost growth as it adds a further 25 countries to the list.

The drop in shares to a year low this week offers a good entry opportunity for potential investors. We continue to recommend the shares as a ‘buy’ for medium risk investors seeking a mixture of growth and income due to the long-term growth potential, the healthy dividend and reducing competition in the sector.

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