Market Report: Thomas Cook plunges on 'zero growth' warning

Raised fears over the state of the package-holiday industry prompted Thomas Cook to plummet towards the bottom of the mid-tier index yesterday, at one point reaching its lowest level since 2008.

Touching 164.5p near the start of the session, the travel group eventually closed at 167p – a retreat of 2.4p – as traders pointed to a "brutal" downgrade from Goldman Sachs. The broker turned dramatically bearish on the company, changing its "buy" advice to "sell" and slashing its price target by 80p to 150p.

As well as noting the numerous difficulties that have faced the travel sector in recent months, including the political unrest in North Africa and the Middle East, Goldman's analysts said the package-holiday business was "a zero-growth sector", pointing out that the number of such trips being taken by consumers in the UK has seen a steady decline over the past few years.

The analysts also warned "increasing online penetration will lead to lower barriers to entry and greater price transparency", adding that this will increase the pressure on its margins.

Thomas Cook is heavily reliant on package holidays, which accounted for nearly three-quarters of its sales in 2010. Tui Travel has an even larger exposure of 84 per cent, but Goldmans kept its "neutral" rating on the blue-chip group, and it eased back just 0.6p to 231.8p.

Overall, the FTSE 100 managed a positive response to Tuesday's large fall, shooting up 45.97 points to 6,010.44 after it lost 88.97 points the session before. The banks played their part, and Barclays was the sector's top performer with an uptick of 4.7p to 308.85p following impressive results from the US giant JP Morgan.

Another helped on the read-across was Arm Holdings, 38p ahead at 598p, in the wake of forecast-beating figures from its Dutch peer ASML. The market was also impressed by previews of Microsoft's Internet Explorer 10, which uses the chip maker's technology.

"Bears... argue that Windows on Arm could be late and/or unstable, which appears not to be the case," Morgan Stanley said. The broker added it was "positively surprised that... development is already well advanced".

The miners failed to see a major recovery from Tuesday's sell-off, with Xstrata just 3p higher at 1,468.5p and Antofagasta dipping 5p to 1,406p.

Elsewhere in the sector, Fresnillo stayed at 1,576p as it announced its silver production for the first quarter fell just over 2 per cent. It did receive support, however, from Numis Securities, which said the group was its "preferred play" among the silver miners, although the broker advised investors to switch into gold.

It is not every day brokers respond to entertainment gossip, but in the case of The X Factor and ITV it seems like analysts are keeping a close eye on the burning question of who will be in the judges' chairs at the start of the next series. Recent reports have suggested that Simon Cowell could only appear in the final, which was enough to prompt Nomura to examine the situation.

Its analysts pointed to the current series of American Idol, which is Cowell-less for the first time, saying that it "has not suffered as much as had been expected from his absence". They therefore decided the news was not enough for them to change ITV's "buy" rating, and the broadcaster edged forwards 0.05p to 75.35p.

JD Sports was out of shape on the FTSE 250, sliding 64p to 837.5p, despite beating expectations with its final results. But the damage was done by the tone of the high street chain's outlook statement, with the group warning it was "extremely cautious" over the problems facing trading.

Elsewhere in the retail sector, SuperGroup powered up 70p to 1,432p as its peer Asos finished a huge 243p better off at 1,950p on the Alternative Investment Market (AIM). The clothing website made the move after revealing its international sales in the first three months of the year recorded a 144 per cent year-on-year increase.

Back on the mid-tier index, WS Atkins was driven up to the summit, rising 38.5p to 727p, following a brief-but-positive trading statement. The engineer was bullish on its upcoming full-year results, saying it expected its figures to come in ahead of forecasts thanks particularly to the strength of its Middle East operations.

However, Cookson finished near the other end after Goldman Sachs took it off its "conviction buy list". The engineering group was knocked back 8p to 652.5p as the broker made the move because of an increase in raw-material costs, saying its earnings will be negatively affected in the short-term as a result.

A second profit warning in not much more than a week meant Alterian retreated 57.5p to 108p, with the small-cap software group saying there would be yet another update next Monday.

Meanwhile on AIM, Aureus Mining – the gold producer which has been spun out of African Aura Mining – enjoyed a positive first day of trading, adding 7.5p to close at 115p by the bell.

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