Stock of the day 21/09/2015 – Thomas Cook Group PLC

There was no summer holiday for Thomas Cook this year; can the company continue its nascent recovery with its pre-close trading statement on Thursday?

Things got off to a pretty stagnant start in 2015, with Thomas Cook, still processing the shock departure of Harriet Green, lingering in a £1.25 to £1.30 trading bracket for January and the start of February after opening at £1.27. Its first quarter results on the 11th February, however, quickly pushed the stock below £1.20 as the company posted a £7 million loss (granted compared to a £53 million loss the year before), with average selling costs in the UK shrinking by a percent alongside.

Thomas Cook couldn’t break out of this slump until early March, when it rocketed by 25% in a single day following news that Chinese conglomerate Fosun had bought a 5% stake in the company, fuelling takeover speculation and restoring a bit of sorely needed zip to the stock. After grazing £1.60 by the middle of March the excitement around the stock cooled slightly, with Thomas Cook trading between £.104 and £1.50 until the UK election results were announced, despite a trading update at the end of March that signalled that bookings had picked up since February.


(Source: IT-Finance.com 21/09/2015)

The aforementioned UK election results jump-started Thomas Cooke once again, lifting the stock to a 2015 (and 11 month) high of £1.62 by the middle of May. However, that surge wasn’t too last long; the callous handling of a compensation issue in regards to the death of two young children at a resort in Corfu, complete with a dismal display from new CEO Peter Fankhauser, took Thomas Cook away from its highs, before its half year report a few days later added to its woes.

Despite falling 22% year-on-year the company’s operating losses for the six months to March 31st were still £220 million; however, winter bookings of own brand hotels 30%, with a 22% increase for summer 2015, whilst online package bookings grew by 12%. Arguably the most important announcement, though, was the news that Fosun would be helping Thomas Cook purchase 30 hotels in key destinations with aim of turning them into own-brand properties.

The combination of the company’s public toxicity and somewhat underwhelming half year figures saw Thomas Cook fall to £1.37 by the middle of June, before the tragic attack in Tunisia at the end of June and the escalating Greek saga at the start of July put stock on track to hit £1.26 on the eve of its third quarter results at the end of July.

That July update merely compounded the losses of the previous months, with Thomas Cook warning that around £25 million would be lopped off its full year profits due to the combined impact of the events in Tunisia and Greece on top of the £39 million pre-tax profit impact of the pound’s strength against the euro and Swedish Krona. This headline news overshadowed the fact that the company edged into a £3 million operating profit from a £42 million loss the year before, and caused the stock to slide to a 2015 (and 10 month) nadir of £0.98 by the end of August (a slide exacerbated, of course, by the month’s China-caused chaos).

Things have looked up for the company since then, however, with a wet August lifting expectations ahead of Thursday’s update to put Thomas Cook at a current trading price of £1.20 (IT-Finance.com, 21/09/2015). Further clarity over the impact of Tunisia, Greece and the pound-euro will be the main things investors are looking for from Thursday’s statement, alongside any news of the progress of the Fosun hotel deal.

Thomas Cook has a consensus rating of ‘Hold’ with an average target price of £1.41.