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City analysts split on Cook woes

City analysts were this morning split on what yesterday’s revelations of financial problems for Thomas Cook mean for the travel giant.

While most analysts have put a recommendation of Sell on its stock leading travel industry analyst Andrew Monk, chief executive of VSA Capital has upgraded to ‘Hold’.

He said he believes, like MyTravel/Airtours before it Cook is too big to fail and the government will make sure the banks step in to ensure it survives.

As trading opened this morning Cook’s shares had rallied but only slightly, after yesterday’s close at 10.20p, to 11p, up 7.84%.

Monk said: “The investors question is of course will the banks take everything? Well, looking at Airtours they could have, but actually investors who bought just before the banks took control actually did OK.

“But I am going to ‘Hold’ not ‘Buy’. It would be a Buy if I knew that the company had some proper management who were prepared to do what is needed but I’m not sure they have today.

“I suspect the current management even without Manny still think they are a big Company, but they are not. They have a market cap of only £100mn, so are a small cap and need to think like that.”

Monk believes Cook has two potential paths ahead of it; the first is that it should look to sell its mass market business and its airline, possibly to a lowcost rival, and “then focus on what TC stands for global adventure holidays”.

The second possibility is of a buy-out, again maybe by a lowcost airline, it’s big two rival Tui Travel, Virgin or an overseas player. However he added: “But remember the best time to buy a tour operator is about March as cash outflow becomes inflow.

Issuing a guidance of ‘Sell’ yesterday and a target share price of 1p Peel Hunt said Thomas Cook needs recapitalising and “this is likely to be painful for existing investors.

The analyst questioned whether, in the light of numbers involved Cook’s equity was worth anything saying there was a real risk it was only of “nominal value”.

However it added: We do expect the group to come through this period with the support of the banks and a financial restructuring.

Citing “poor visibility about future trading, it said: “We are suspending our forecasts given the financial situation and lack of visibility going forward.

“It is likely that the UK and France are the major contributors to the worse trading position, but the backdrop across Europe is hardly helpful. Rebuilding bookings will be tough in the UK when consumers read their papers today.”

It went on: “The best scenario is that the banks simply extend additional short-term facilities to Thomas Cook with additional costs.

“We consider this is unlikely, given that confidence in the company is likely to have been substantially damaged. This may also extend the trading pain if consumers and suppliers remain nervous.”
Yesterday Cook acting chief executive Sam sought to reassure consumers that Thomas Cook was open for business as usual and that it was trading within the current terms of its debt agreements with the banks which are its main shareholders.

It was revealed Cook was looking for an additional £100 million to see it through the winter following a severe drop off in bookings in mainland Europe due to the eurozone crisis and the poor performance of its new Russia business.

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