Fears for Thomas Cook after shares sink 75 per cent

Travel giant delays results and looks to secure fresh funds as trading deteriorates

James Thompson
Wednesday 23 November 2011 01:00 GMT

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Thomas Cook remained defiant about its long-term future yesterday, even as three-quarters of its market capitalisatin was wiped off after a "deterioration" in its recent trading and its "cash and liquidity position".

But City analysts questioned whether the beleaguered tour operator – which has net debt of £900m – can "survive long term" and if there is any value left in its equity.

Nick Batram, an analyst at Peel Hunt, said that "Thomas Cook is clearly in a precarious financial position," slashing his target price on its shares from 55p to just 1p. He expects it to come through this period with the support of its banks, but raised the prospect of a £700m recapitalisation of its balance sheet that may include a rights issue.

The debt-laden Thomas Cook has been forced back into discussions with its banks – a syndicate of 17 lenders including HSBC, Barclays and the Italian lender Unicredit – to secure "additional liquidity" during the seasonal low point for cash levels. However, it stressed it "remains in compliance with its financing covenants".

Thomas Cook had just renegotiated its banking facilities at the end of last month, in addition to securing a further £100m of headroom on its covenants.

The group, founded in the 19th century by the pioneering travel agent Thomas Cook, has also delayed the publication of its full-year results, originally scheduled for tomorrow.

Shares in Thomas Cook plummeted by 30.91p, or 75 per cent, to 10.2p yesterday. But the update also dragged down its better-performing rival Tui Travel by more than 9 per cent to 136.7p.

Thomas Cook has previously blamed a downturn in consumer spending in the UK and the unrest in the Middle East and North Africa for three profit warnings this year. These led to the exit of its chief executive Manny Fontenla-Novoa in August.

But yesterday it cited a fall of up to 20 per cent in bookings at its French and Belgian businesses, particularly to Egypt, for poor trading this quarter. Its Russian joint venture has also been hurt by a fall in reservations to Egypt, as well as to flood-hit Thailand.

James Hollins, an analyst at Evolution Securities, said: "Legitimate questions will be asked as to whether Thomas Cook can survive long term." He also questioned "whether there is any value left in its equity".

But Sam Weihagen, Thomas Cook's interim chief executive, said it was a "robust business that has a great future. We're operating business as usual. Flights are leaving on schedule, shops are open and we're taking bookings."

These comments were partly aimed at consumers, although holidays with Thomas Cook are protected by the Atol scheme. But Mr Batram said: "If you were Joe Public looking to book a holiday you would probably consider looking to book with Thomson rather than Thomas Cook."

He also raised the prospect that Thomas Cook's net debt could peak close to £2bn, including its pension deficit of £274m. Peel Hunt forecasts Thomas Cook's profits will have fallento £190m forthe year to 30 September.

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