Panmure Gordon has raised its rating for travel and leisure group TUI Travel from 'sell' to 'hold', saying that there are now few catalysts for the stock to underperform.

Nevertheless, the broker reiterated its cautious view on the macroeconomic environment "with most source markets suffering challenging economic conditions combined with rising fuel costs".

Meanwhile, a weakening pound could also affect accommodation costs in the UK market next year which would put pressure on margins.

"However the group is outperforming operationally, free cash flow generation is improving and with renewed effort from TUI AG to optimise the corporate structure of the two companies we see few catalysts for the stock to underperform," Panmure said.

In regards to the corporate structure, the broker highlighted comments from outgoing Chief Executive Officer Michael Frenzel who said that the doubled structure of TUI Travel and parent TUI AG (which owns 56.4%) is not optimal and synergies could be realised from a simpler structure.

Panmure has raised its current- and forward-year earnings per share forecasts by 2-3% to reflect TUI Travel's stronger first quarter performance (announced last week) and solid booking trends for the remainder of Winter 2012/13 and Summer 2013 in the UK and Nordics.

As such, the target price has been lifted from 245p to 303p.

Shares were up 0.6% at 318.6p by 10:09 on Friday.

BC

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