A leading City firm has given the thumbs up to new Thomas Cook Group chief executive Harriet Green’s first set of annual financial results.
Morgan Stanley described the figures as an “encouraging start” for Green as she starts on a plan to turn the company around.
The Thomas Cook share price, which had slumped as low as 11p in the depth of last year’s crisis, hit a nine-month high following yesterday’s results and was 25.75p as of 8.45am this morning.
Cook’s earnings before interest and tax (EBIT) is forecast by Morgan Stanley to come in at £203 million in 2013 against £156 million reported today for the year to September 30.
It also pointed to a better net debt position, encouraging current trading, and positive initial comments on the business transformation plans which are due to be fully detailed in May.
“The company seeks to build stronger relationships with hoteliers to deliver a differentiated product, and plans to review its approach to capacity management,” the Morgan Stanley note says. “It plans to improve its technology to deliver ‘true omni-channel distribution’. We will hear more in May, and expect targets to be given then.”
Looking at current trading, winter bookings are generally behind last year but prices are up at least 5% in all regions and the company is cutting significant capacity, which bodes well for margins.
Capacity cuts of 18% in the UK, 36% in continental Europe and 22% in west Europe look “very large” as the company is making an effort to cut down its committed capacity and outsource a higher level of flying, according to Morgan Stanley.
“For those looking for self help stories in 2013, Thomas Cook should be on the radar here,” the note from Morgan Stanley international equity division managing director Matt Smith says.
“The need to raise equity at some point poses a risk, but if management can continue to restructure the cost base, and capacity in the market remains tight, the shares still have significant upside potential.”
The note adds: “We forecast £203 million of EBIT in 2013 and consensus is at £200 million.
“The company is confident it will be able to achieve the £60 million profit improvement in the UK from its restructuring plan and it should get £10-15 million from its new cost cutting plan.
“However, higher fuel costs of £40-50 million mean it will need c£30 million of underlying profit improvement.
“On our £203 million estimate it will come close to covenants in December 2013, and we continue to think it will have to raise cash to reduce debt levels.”
Financial services group Nomura said that while full plans and detailed financial benefits of the details of Green’s business transformation plan are not expected until the spring of 2013, the three elements of the initiatives disclosed today “should reassure investors”.
Investec responded to the results positively, sayng: “This is an encouraging statement of intent and represents a suitably aggressive start to life under CEO Harriet Green.
“With net debt down to more manageable levels and a supportive banking syndicate, we think Thomas Cook now has the platform and management to deliver the required cost and business changes to thrive.”