MaxMarioni
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Posted on 7 December 2015, 7:20 AM

High Flyer of the Week: Thomas Cook Group

Topics: Tourism
Other Insights on Related Shares: TCG.L
Related Shares: Thomas Cook Share Price

In a remarkable turnaround, Thomas Cook Group PLC (TCG.LN) has gained the headlines last week by staging a record rise in the value of its shares. Stocks in the travel company rocketed up by almost 11% to 107.7p, its highest increase in a single day’s trading since March and the highest overall increase in the FTSE 250 index on that day (Wednesday 25th November). The stock continued to climb to 117.90p on the close of Friday 27th November. The surge in value of the travel agent was driven by the publication of its annual profits which revealed the group had netted £19 million pounds in after tax profits. It was the first profit recorded by the company in five years and compares especially well with last year’s results, when the group posted a loss of £115m.

 

The Swiss CEO Peter Fankhauser described the result as “a good start”, that consumer sentiment was “positive” and booking numbers “encouraging”. “With our business on a firmer financial footing”, he continued, “we have a clear strategy in place to deliver greater value for customers and sustainable growth for our shareholders”. The value of its shares, even after the rebound, is still down compared with figures from before its near bankruptcy in 2010, and only this year the stock has lost 15% of its value compared with a year ago. It is possible then, that Thomas Cook is still an underrated share, and that it has a potential to grow even further than its current value. Certainly that is what Citigroup analysts believe, predicting that the stock will have a potential upsurge of 5.6%. But what managed to help Thomas Cook, in a period when travel companies are suffering from consumer backlash following the recent spate of terrorist attacks, to return to growth, and is that growth sustainable in the future?

Its present (and future) business success is based around the following key factors:

  1. The Domestic Market: UK earnings before interest and tax soared by 42% to £119 million, with UK bookings for winter going up 8%. On the other hand, profits from continental Europe, where competition is more intense, have dropped in the same period by 21%.

 

  1. “Focus on the customer”: as described by Peter Fankhauser, this new customer-centric approach drives to adapt the offer of available destinations to the demand, switching to summertime resorts in the Canary and Cape Verde Islands and away from Egypt and Tunisia, perceived as riskier due to the terrorism threat. The group has also expanded its portfolio of own brand hotels and offer of flights: bond sales have financed this expansion. The company claimed this strategy will "generate resilient revenue growth, improve profitability, increase cash flows and deliver further shareholder value".

 

  1. A pivot to Asia: the group has launched earlier this year a collaboration with its Chinese counterpart Fosun International (which owns 5% of the company), in a signal that it is embarking upon a major drive for expansion in China and neighbouring countries. The tour operator has already announced a new project where it will be ferrying Chinese tourists to Thailand. The company said that "Our business plan focuses on the fast-growing Chinese leisure travel market, and we expect to obtain the relevant regulatory licenses to begin trading in the New Year".

 

Four years ago, when it was in the midst of the crisis, Thomas Cook slashed its dividend, with no plans to pay dividends again until 2017. The group has estimated that it will pay out dividends between 20 and 30% of net profits: analysts predict that will come down to 3p per share. Its market capitalization is £1,760,085,686 GBP and there are 1,535,851,404 shares in issue. The average daily volume of traded shares is 4,571,621:  TCG.LN has registered a high of 162.2 GBX for the stock and a low of 97.65 GBX this year.

 

Max Marioni


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