Investment Column: Thomas Cook shares will continue to soar

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The Independent Online

Thomas Cook

Our view: Buy

Share price: 212p (-4.2p)

Rays of sunshine peeked through the clouds hanging over the tourist industry yesterday, as annual results from Thomas Cook beat consensus expectations and also included an upbeat outlook for the coming year.

The holiday company's revenues rose by 6 per cent to £9.3bn over the 12 months to September, and its profits before tax stayed flat at £308m. Earnings per share rose by 10 per cent to 26.4p and the dividend was up 10 per cent at 10.75p.

Among the good news, the biggest area of interest was Cook's £765m debt. The chief executive, Manny Fontenla-Novoa, said the recent flurry of concern was just "noise", stressing that Thomas Cook was only 18 months into a three-year facility. "There is no doubt about whether we will get the financing, the negotiations are around the fees and so on," he added.

The aim is to conclude the talks next summer, ideally replacing the current deal with a mixture of different instruments that mature at different times. Mr Fontenla-Novoa also offered categorical assurances that the group was not considering a rights issue. Meanwhile, a deal in Russia likely to boost expansion in the Turkish and Egyptian markets was set for the first quarter of 2010, he said, while the holiday industry was showing signs of real improvement after the recessionary gloom of the banking crisis.

"The outlook is improving quite significantly and has been for the last two months," Mr Fontenla-Novoa said. "We are trading ahead of capacity and, as we look further out, we are in a position where we see some small signs of consumer confidence returning."

Evolution Securities views the uncertainty about future trading as "an unhelpful backdrop" to debt talks. With a price to earnings ratio of just 10.7 times, a considerable discount to rival TUI Travel, Thomas Cook is still a buy. Buy



Aberdeen Asset Management

Our view: Hold

Share price: 140p (+1p)

The announcement last week that Dubai World was creaking under its giant debt pile, and the consequential drop in global equity markets, was a salutary lesson: anyone who thought the global financial mess was well and truly behind us could not have been more wrong.

The good news for asset managemers, however, is that as investors' confidence has returned over the past few months, so funds under management have grown, profits have risen and new funds have swelled. Aberdeen Asset Management's chief executive Martin Gilbert said yesterday that it had had a good final quarter of the year. Its full-year profits fell by only £85.1m – less than most analysts had predicted. Indeed, the group has had to close its new emerging fund, such has been its popularity.

Investors have also seen the fruits of the better sentiment in the market, with Aberdeen AM's share price jumping by nearly two-thirds in the past 12 months. Mr Gilbert, however, concedes that asset managers generally outperform a good market and underperform a falling one. Amid concerns that markets had got a little overexcited in recent months, so Aberdeen's share price growth slowed, putting on just 8 per cent in since May.

Analysts are generally supportive, arguing that Aberdeen in good shape, especially after buying Credit Suisse's asset management arm earlier in the year, but there is a concern that a genuine market recovery could be some way off. We think Aberdeen is one of the better asset managers, despite trading on an even-weight valuation to its peers. We are not convinced that markets have not finished tying themselves in knots, however, and would hang fire for now. Hold.

First Property

Our view: Buy

Share price: 17p (+1p)

According to Ben Habib, the chief executive of First Property Group, Poland was the only EU member state not to go into recession.

Not that it really helped. The property investment company which has 80 per cent of its money tied up in Poland has seen its shares flatline over the last year, despite the country's relatively good performance.

First Property was not helped by its statement in March, when it quite correctly warned the market that it was concerned about Poland (an "emotional lowpoint", according to Mr Habib) and put even more pressure on the stock. There is a silver lining, however. First Property's shares are cheap, trading on a price-earnings ratio of 5.9 times, according to Arden, and the dividend yield is a very healthy 6.2 per cent.

First Property has also recovered its confidence and is in the process of raising two new funds. The stock can be found in the bargain basement at the stock exchange, so we suggest you have a look. Buy.

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