Market Report: Thomas Cook's future gets a vote of confidence

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The Independent Online

Can Thomas Cook survive? There are some in the Square Mile who believe so, despite the troubled tour operator having suffered a terrible 2011. The group endured three profit warnings, two refinancings and one chief executive jumping ship last year, prompting its shares to lose more than nine-tenths of their value.

Yet all may not be lost. Thomas Cook flew up more than 30 per cent yesterday after Investec's scribblers outed themselves as supporters, saying that although its share price is "effectively pricing in failure to... survive beyond the short-term", it does in fact have a future. The company – which now trades on the small-cap index – is currently searching for a new boss to replace Manny Fontenla-Novoa, who resigned last August, and analysts said an appointment could spark a major rebound.

They also highlighted the support that Thomas Cook has been receiving from its banks, and argued that it has the ability to generate enough cash to pay off its debts and restart its dividend. The group has been looking at asset sales, with speculation emerging recently that it could dispose of its Condor charter airline.

However, Investec's analysts did have some discouraging words for the sector in general, saying that not only were cash-strapped consumers currently less likely to take an annual foreign holiday but that those who did were increasingly constructing their own trips.

Nonetheless, they started coverage on Thomas Cook with a "buy" rating – albeit admitting it was speculative – and a target price of 30p, prompting it 4p higher to 17p, its strongest for nearly three months.Its bitter mid-tier rival, Tui Travel, was not so lucky, being given a "sell" recommendation and dipping 5.3p to 202p in response.

Overall, the FTSE 100 continued to drift back as a late rally failed to stop it finishing 11.65 points worse off at 5,916.55. Still, traders were impressed that – with the benchmark index having hit a seven-month high at the start of the week – the market had not been knocked sharply down.

Takeover talk around Shire made yet another reappearance yesterday as Germany's Bayer was once again put forward as a potential predator. The vague speculation – suggesting a possible price of 3,500p a share – saw the pharma group advance 23p to 2,248p, while it was also given the green light from the European Medicines Agency to produce its Gaucher disease drug VPRIV at its new US facility.

At the same time, vague rumours were being revived that France's GDF Suez could be keen on buying up the 30 per cent of International Power it does not already hold, although the power generator only edged up 2.3p to 338.5p in response.

The session's biggest blue-chip riser was Rexam, with the drinks can maker fizzing up 7.44 per cent to 413p after revealing it was going to sell off its personal care business. Also doing well was Capita following the news it had won a £50m contract to manage training for the Civil Service. The outsourcer was lifted 6.5 per cent to 688.5p, with dealers putting the size of the move down largely to a short-squeeze.

Royal Bank of Scotland slipped 0.88p to 27.33p before its final results today as concerns over the latest Greek bailout deal prompted profit taking from the banks following their recent rally.

Meanwhile, Marks & Spencer dropped 5.8p to 349.1p after Morgan Stanley's Geoff Ruddell warned that – with the retail institution owning the freehold to most of its stores – it will find it challenging to exit from those high streets in decline.

Down on the FTSE 250, Ophir Energy and Afren climbed 7.25 per cent to 392p and 5.88 per cent to 140.5p respectively in the wake of the news that the AIM-listed Cove Energy had agreed to be bought by Royal Dutch Shell for $1.6bn (£1bn), or 195p a share.

The deal fuelled takeover hopes around the explorers, and Investec's Stuart Joyner said Ophir was one of the most likely to also be targeted, while brokerage Fox Davies claimed it put "the whole sector back on take-out watch". Cove itself jumped 25.57 per cent to 194p with some in the City optimistic a rival bidder could emerge, although Mr Joyner said the offer by Shell – which was 12p higher at 2,345.5p – was "unlikely to face a challenge".

Back on the mid-tier index, Cable & Wireless Worldwide (CWW) retreated 0.73p to 26.29p after Espirito Santo said its current share price implies the market thinks there is less than a 20 per cent chance of a deal being completed with Vodafone. The telecoms group has failed to push on since rocketing up 45 per cent in one session last week on the news that the mobile phone giant was considering whether to make a bid.

Spreadbetter London Capital ticked up 4p to 76p on AIM after revealing that the volatility in the second half of 2011 had resulted in record trading volumes and full-year revenues to jump 13 per cent to £39m.

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