Thomas Cook – Slow but positive progress against a very sad backdrop

The Thomas Cook (TCG) results for the second half and full year to 31st March 2015 appeared this week. I observe that the share price reached a new high of just over 160p in advance of the figures, from which it has fallen – last seen – to 149.5p. It is a moot point as to whether an initial fall to 146p was prompted by the results or the grim publicity given to the inquest on the death of the children on holiday. It is hard to imagine wider or more negative news coverage of a company than that given to Thomas Cook’s management over the incident of the children’s death several years ago.

Apart from wide television news coverage and a typically savage attack from the Daily Mail, the company’s short comings – or rather the short comings of its senior management – were the subject of admonishing editorials in both the Times and the Financial Times. The best PR agency in the world could scarcely deliver such coverage in normal circumstances. The question is, does that create uncertainty for Thomas Cook bookings for the rest of the year? There was a newspaper report yesterday – whether it is significant or not I don’t know – that Google searches for the Thomas Cook website were down 18%. 

As underlined in my pieces on this share in recent months, I have pointed to the fact that share price has no dividend or asset backing to govern the fall in the share price; in short no floor of value under the share price to hold it up when news, perceptions and expectations worsen.

With regard to share price history, note that between January and February the shares traded approximately between 120p to 131p; then, breaking out of that range by heading for 158p a share and creating a new, higher, imputed trading range of 140p to 158p.  

Put simply, my reading of the share price chart is that at 149.5p, it remains midstream of an established uptrend, which began sometime late last summer. My cursory observation suggests that within that uptrend it has a probable short term upside of 10% within that trend and a probable short term downside of 16% within the trend. Such readings always have a touch of subjectivity, so have a look and judge for yourself; the basic point being that it is an up-trend and one with wide swings about the central trend. So what did the latest results tell us?        

They show the kind of progress that I had hoped for when I proposed it as a speculative buy at 142p back in March. The share price duly obliged with an 11% rise to 160p but now, at the time of writing, this has shrunk to a capital gain of a mere 5.2% at 149.5p last seen, post results and after some withering publicity about the sad death of the two children.

The progress is slow but positive. Revenue was reported down 8.6% over the year and underlying gross margins were down slightly at 22.2% compared with 22.4% a year earlier. However, trading profit margins (i.e. EBIT margins) improved significantly from 3% to 4.1% and profit at the operating level rose 172% from a reported £43m to £117m. The loss before tax dropped 71% to £52m. So the company makes progress towards the goal of breaking even at the net level in due course.

The company’s management appear to have done the right thing at last by meeting and apologising to the parents of the dead children. The company was found free of guilt in a Greek court and rather, the victim of it under civil law. The last act of this tragedy will be the UK coroner’s judgment.