Broker snap: Credit Suisse initiates Thomas Cook at outperform

5th Dec 2012 15:16

On Wednesday morning analysts at Credit Suisse issued a research note initiating their coverage of Thomas Cook with an outperform rating and a 36p price target.They premised that on the company's renewed focus on cash generation, the projected £180m of self-help and cost savings, signs of package holiday stability, the forecast reduced low-cost-carrier growth, a 20% free cash flow yield and 38% potential upside to their price target.The Swiss broker also addressed the subject of recent media reports referencing the possible need to raise equity. They wrote that under a scenario which assumes a £300m equity raise leverage would decrease to 1.9 times Net debt/EBITDA [earnings before interest, taxes, depreciation and amortisation], for a decrease of 41%, with estimated 2014 earnings per share (EPS) down 58%, implying a price-to-earnings ratio of 4.9 times.They concluded by saying that: "Our target price is based on a 3-year average price-to-earnings discount to TUI Travel of 34% (currently TT trades on an estimated Dec-2013 price-to-earnings of 10.1 times). Using the £300m midpoint of our rights issue scenarios, the shares would trade on an estimated post-rights Sept-2014 price-to-earnings multiple of 4.9 times versus TUI Travel on 9.5 times."AB