Thistle has recorded disappointing profits in recent years, and had been planning to sell up to an investment group such as Nomura. When that announcement was made in June, shares rocketed from 110p to 250p. But in August, as markets began to turn, it became apparent that prospective buyers had backed out.
To compensate investors, Thistle has sold 30 hotels to finance the return of capital. More will have to be sold before the second tranche next April. It is also refurbishing its remaining hotels and introducing new control systems.
It had been expected to take the shape of a share buyback. Instead, Thistle is creating a bonus issue of redeemable preference shares with a nominal value of 15p each. These "B" shares do pay dividends, of 75 per cent of Libor, but most are expected to plump for the cash.
The issue is being consolidated by swapping 50 new ordinary shares for 57 existing ones. But it will still effectively reduce earnings per share.
According to Merrill Lynch, forecast earnings are unchanged at pounds 84m for the full year of 1999. But earnings per share will shrink from 12.6p to 10.6p, raising the forward p/e from 10 to 12. That is a discount of nearly 30 per cent to the market - appropriate given the dismal prospects of the travel market. Cash the B shares in and hold the ordinaries only for the long term.