Thomas Cook’s latest trading statement supports my optimistic point of view

By Robert Sutherland Smith

(Ref. my earlier note dated 22nd March 2015.)

I ran the rule over Thomas Cook (TCG) at 142p as a possible speculative buy on the 27th March last, albeit pointing out its many defects as a store of value, which included a lack of asset backing, earnings and dividend. This week, the company produced its trading statement to tell me whether my investment ‘nose’ for speculative value is still in working order.

For those of you, who may not know Thomas Cook – or did not accompany me on its Thomas Cook & Sons first holiday tour package to Switzerland and Egypt for ardent Baptist Tea Totallers, to escape the fog of London in the 1860’s – it is now largely an Anglo German leisure travel company which markets itself under a variety of trade names including: Thomas Cook, Neckermann, Condor, Jet Tours, Ving, Spies and Tja reborg, operating a fleet of near ninety aircraft flying across Europe and Scandinavia.   

The company’s management state that it has been trading in line with expectations. The highlights of that trading include the fact that its 2014/2015 winter season was almost fully booked and its forthcoming summer season offers were more than half sold with bookings that were two per cent up year on year. The UK is signalled out as a segment where trading is ahead of that seen last year. For Continental Europe, trading was reported as still tough, against a strong comparative reporting period a year earlier, but that things have improved since the report of the first quarter’s results. In particular, the Concept Hotel business bookings were up 20% and Thomascook.com bookings were 10% higher as the digital offer continues to develop.

There was also notification that its German airlines business is also growing strongly, particularly on long haul. It seems that the particularly challenging conditions in this segment of the business are ‘showing early signs of improvement’. The management also reported that new product and ‘winter sun’ initiatives are leading to growth. It also expressed the opinion that its strategy, rigorously implemented, will lead to further business performance improvement.

Turning to the outlook for trading this summer, confusingly, bookings are reported two per cent higher than last year, but total bookings were lower by one per cent, due to a similar one percent drop in prices. Again, the UK was a bright spot with a four per cent increase in bookings. In continental and northern Europe, bookings were lower by four per cent (against a reportedly strong demand period a year earlier).

With regard to share price chart technicalities, I point out that between January and February the shares traded at approximately 120p to 131p, only to break out of that range by heading for 158p a share and creating a new, higher imputed trading range of 140p to 158p. The share price, which has come back to 142p (last seen), is ready to test that theory. The longer term perspective suggests considerably more upside than downside, providing management remains true to its strategy and execution of its forward business plans.   

Nothing in this trading statement contradicts my view that this share is one to look at, especially for those with an interest in speculative equity. With economic conditions improving in the UK and Germany, a bet on better things to come could reap rewards. The next report and accounts will tell us more about finances. Results for the six months ended 31st March 2015 are due on 20th May 2015.