Broker snap: Thomas Cook under a lot of pressure, says UBS

14th May 2012 11:15

UBS says that Thomas Cook's recent financial deal is just a short-term fix and is 'kicking the problem down the road'.The company announced last week that the new terms of the existing £1.4bn finance facility extend the maturity of its financing until May 31st 2015, and have revised financial covenants which give the group greater financial flexibility. "We believe the new financing will increase financing costs by c£28m year-on-year, in addition to £14m of new leasing costs. The continued focus on revolving finance suggests that significant seasonal cash flow swings are also likely to continue," UBS said.Meanwhile, the broker highlights the group's deterioration in operating performance, as seen in the first-half pre-release which showed falling profits in all regions."Whilst the new financing helped avoid the issuance of further capital in the short-term, the new deadline of 2015 on existing financing puts significant pressure on the operational turnaround of the business, in our view. [...] We believe additional financing costs will significantly reduce shareholder returns and see no prospect of a positive post-exceptional cash-flow yield to shareholders before 2016," the broker said.After having cut its full-year (ending 2012) earnings before interest and tax (EBIT) forecast by 14% - similar reductions have been made for 2013 and 2014 estimates - UBS has reduced its target price for Thomas Cook shares from 23p to 21p.BC