TUI AG confident on Hapag-Lloyd IPO in 2011

By Victoria Bryan

FRANKFURT (BestGrowthStock) – German tourism group TUI AG (TUIGn.DE: ) is confident it can float its stake in container shipper Hapag-Lloyd (HPLG.UL: ) in 2011, a first step in plans to focus on its travel business.

Chief executive Michael Frenzel told journalists on Tuesday his preferred option would be an initial public offering but added that he was in no hurry.

“We currently see a favorable time window for exiting our Hapag-Lloyd position. Container shipping is healthy and on an upwards trend,” Frenzel said in a conference call after the group reported a 25 percent rise in underlying 2009/10 profit.

Shares in TUI, which owns Europe’s largest tour operator TUI Travel (TT.L: ), rose 4.8 percent to a two-year high of 9.79 euros at 0846 GMT, topping the German mid-cap gainers (.MDAXI: ), also helped by its forecast for a positive group result in 2010/11.

Analysts at WestLB welcomed the optimistic outlook so early in the new financial year.

“The attractive valuation in combination with several share price drivers in the coming weeks (for example, IPO of Hapag-Lloyd, further good booking situation for the summer season) makes TUI AG one of the most attractive stocks in the sector,” they wrote in a note to clients.

TUI had previously planned to sell Hapag-Lloyd to a consortium, but falling freight rates and volumes as a result of the financial crisis meant it ended up pumping more money into the company and keeping a larger stake than it expected.

Now that trading has improved, TUI said earlier this month it planned to mandate Credit Suisse (CSGN.VX: ), Goldman Sachs (GS.N: ) and Greenhill (GHL.N: ) to start preparations for a stock exchange listing of Hapag-Lloyd.

TUI owns 43 percent of Hapag-Lloyd and this will increase to almost 50 percent at the end of 2010 through the exercise of a convertible bond. It has previously valued its stake in Hapag-Lloyd at 2.5 billion euros ($3.4 billion).

Frenzel said on Tuesday TUI was also considering selling its shares to individual investors.

Logistics businessman Klaus-Michael Kuehne, part of the Albert Ballin consortium that owns 57 percent of Hapag-Lloyd and majority owner of Kuehne + Nagel (KNIN.VX: ), is expected to increase his stake in the shipping firm after the IPO, sources told Reuters last week.

RUSSIA, BRAZIL KEY MARKETS

TUI reported underlying earnings before interest, tax and amortization (EBITA) of 589.2 million euros for the 12 months to the end of September, compared with 470.5 million last year.

Turnover fell 1.5 percent to 16.35 billion euros, hurt by the Icelandic ash cloud that grounded European flights for just over a week in April.

“Trading for the current winter season is up year-on-year in all European source markets, with some markets reporting substantial growth,” Frenzel said.

After staying at home during the recession, consumers are starting to book holidays again, with customers in Nordic countries in particular driving growth.

Russia and Brazil will be key areas for expansion in the future, Frenzel said, with smaller acquisitions likely in Russia.

Rival Thomas Cook (TCG.L: ) is also keen to take advantage of the fast-growing Russian market and recently bought into local operator Intourist. Frenzel said TUI was ramping up marketing costs as it aims to gain market leadership there.

He added that together with TUI Travel CEO Peter Long, he was looking at Brazil as a possible source market and was also planning to reorganize its joint venture in China.

For 2010/11, analysts estimate underlying EBITA will rise to 668 million euros, according to a Reuters poll.

Frenzel declined to comment on whether TUI would pay a dividend in 2011, but said the group was working to return to a payout as quickly as possible.

Both TUI Travel and Hapag-Lloyd already reported results over the last month.

(Reporting by Victoria Bryan, editing by Sophie Walker)

($1 = 0.7454 euro)

TUI AG confident on Hapag-Lloyd IPO in 2011