I made a brave positive call on Thomas Cook (TCG) in late November after its share price shocker, noting that: 'The stock is cheap (less than 4 times EV/ebit) but clearly not without risk. Would I roll the dice here as a 2019 punt wrapped up in politics and climate realities? You know - rather than buying one of its holidays - just maybe I would given the range of assets'. The shares have not even washed their face since but they have at least recovered from the dog low of a few days after the trading update when the teenage scribbler analyst types got really worried about the company which - after all - did get very close to permanently overstretching itself and its balance sheet early in the decade into bankruptcy. So it does have form. However I would also say such fears are overstated at prevailing share prices…
The latest update is a bit of a holding statement as the company's fiscal first quarter is a bit 'low season'. Nevertheless Q1 revenues are up 1% but the real key to business prospects remains the summer. Last year it ultimately struggled as the warm UK weather induced many potential customers to stay at home but at least early season sales were strong. Today's environment is more difficult with the company observing that 'bookings for Summer 2019 reflect some consumer uncertainty, particularly in the UK'. You can bet more than just a few of those people have passports with limited months until expiry.
Elsewhere there is a big nod to keeping the balance sheet in good nick with the observation the company is 'strategically reviewing their airline'. Now we all know what this means in reality: it is trying to sell it on in order to focus on stuff lower down the chain. Providing a good holiday experience clearly does include the flight but for Thomas Cook the value-add part is particularly when you get to a holiday location rather than slavishly requiring full vertical integration. And picking up the idea of experiences, 20 new brand hotels is good news especially the ones it is developing with its 10% shareholder Fosun in China.
Putting it all together, no new warning, a bit more potential financial flexibility and cracking on with the core business. They are hardly out of the woods yet - and the curveballs of the UK weather and Brexit passport flexibility realities do linger - but I retain a positive view towards the shares. I am not planning to buy one of its holidays currently but I have still got the shares tucked away...and the more I hear about global warming and Brexit shockers makes me think that anticipating a wet UK summer and a broadly pragmatic world for UK passport holders post the end of March is the right way to be. Buy.
Filed under: Thomas Cook, Learning Technologies, Bearcast, Earthport, Westminster Group, caption contest
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