The pressure is on for Thomas Cook this summer, says Investec

15th May 2014 10:52

Investec has kept a 'hold' rating on tour operator Thomas Cook, saying that near-term earnings risks are high after the company's first-half results. The broker said that UK summer trading "gives us a cause for concern" given that a strong summer is needed from the company if it is to meet the market's profit forecasts.First-half operating losses improved by 14% to £187m, from a loss of £217m the previous year, with a 7% revenue decline offset by cost efficiencies.However, Investec Analyst James Hollins said he predicts a 35% increase in annual operating profits for the year ending September 2014, which "places a significant emphasis on strong summer trading to achieve our [...] estimate of £354m (and consensus of £362m)"."Given the difficult comps and summer UK trading that is tracking, in our view, below expectation (bookings and yields both down 1% and 3% respectively), the pressure is on," he said.Hollins also said that Thomas Cook has "teased the market" since last year with details of its so-called 'Wave 2' 2018 targets for cost and profit improvement initiatives."The announced Wave 2 figure of £400m is a touch below previous guidance (over £440m), if we are being picky."The analyst pointed out that Thomas Cook's shares have tracked around his 180p target price since the start of 2014."There is enough in the statement to keep us at a 'hold', but nothing yet to make us scream 'buy' from the rooftops."The stock was down 6.2% at 167.5p by 11:09.BC