Clouds dim prospects for Thomson Travel

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The Independent Online
THOMSON TRAVEL Group, Britain's largest package holiday company, which came to the market last year, yesterday pledged to fight to hold its position as speculation increased that third-placed First Choice Holidays will fall to a bid. Airtours and Preussag, the dominant shareholder in Thomas Cook, are the most likely buyers.

Thomson holds 29 per cent of the UK market for holidays booked through travel agents, ahead of Airtours with 17 per cent and First Choice and Thomas Cook with 16 per cent.

The company said it expected to play "a key role" in the consolidation sweeping the holidays industry in Europe. After seven acquisitions since the float, it is looking for bolt-on deals in Europe, especially in Germany and the Benelux countries.

The comments came as Thomson reported a 10 per cent rise in full-year profits to pounds 122.9m. However, Thomson shares fell 10.5p to 161p, below the 170p issue price last May, on a disappointing trading update.

Thomson's bookings for summer this year are 2 per cent lower than the period last year. This is better than the industry average of a 3 per cent fall, but it contrasts with a 5 per cent rise announced by Airtours.

Thomson has proved a disappointing investment for the 500,000 small investors who subscribed. They should be encouraged that capacity has been cut by 3 per cent this summer, reducing the danger of a glut of discounted holidays.

Thomson is expanding outside the UK - it now operates in eight countries - and developing its higher margin specialist holidays with purchases such as the Simply Travel/ Headwater business. It is also growing its travel agency chain, with yesterday's pounds 3.5m acquisition of the Robert Sibbald network in Scotland taking its total high-street portfolio to 840.

But there are clouds on the horizon. One is the prospect of Airtours exploiting its strength with more capacity. Another is the uncertainty over First Choice and the possibility of an aggressive overseas operator invading the UK market.

On current-year forecasts of pounds 137m, the shares trade on a forward rating of 16. Merrill Lynch says that is high enough for now.