Morgan Stanley downgrades TUI Travel, Thomas Cook

Fri 20 Nov, 2009 09:10

(Reuters) - Morgan Stanley downgraded travel operators TUI Travel and Thomas Cook (TCG.L), citing a weaker operating environment and more expensive debt refinancing.

"Both TUI Travel and Thomas Cook Group have generated solid margin increases since their mergers, but 2010 looks like being a tougher year, with costs currently rising faster than sales, given that fuel was hedged at much higher prices," Morgan Stanley said.

TUI Travel -- Europe's largest travel operator -- was formed through the tie-up of TUI AG's travel division and Britain's First Choice, while Thomas Cook -- Europe's second-biggest tour operator -- was created in 2007 through the merger of Arcandor's travel unit and Britain's MyTravel.

Morgan Stanley said it had been disappointed by the level of cash generation and growing debts, particularly at Thomas Cook, driven by weak working capital, adverse currency moves, higher-than-expected exceptional costs, and acquisitions.

However, Morgan Stanley said it preferred TUI Travel to Thomas Cook due to TUI's scope for margin recovery and specialist holiday expansion.

Shares in TUI were down 2 percent to 250.1 pence, while those in Thomas Cook fell 3.6 percent to 210.6 pence by 8:33 a.m. on Friday on the London Stock Exchange.

(Reporting by Purwa Naveen Raman in Bangalore; Editing by Aradhana Aravindan)