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Follow The Chinese And Buy Thomas Cook Shares

Published 31/03/2015, 12:09
Updated 09/07/2023, 11:32

It is not quite a rule of investment yet but if you follow what the Chinese are the buying then at least you are likely to have the weight of money on your side.

Back on 6 March this year Fosun Intl (HK:0656) - the large Chinese leisure and related entity - took the first steps in establishing a 10% position in Thomas Cook Group Plc (LONDON:TCG) in a relationship with was described by the latter on that day's conference call as 'a strategic partnership...a historic milestone...the start of a very positive international collaboration'.

I could not agree more. The rise of the Chinese traveller is a global mega theme which will cut across many parts of the economy. Having a trusted partner to help facilitate this is a worthy idea and hence why the stake was purchased.

This news represented something else too and that was a distinct break with the regime of the previous high flying CEO Harriet Green who had resigned a few months earlier in still unclear circumstances. Green - via force of personality and a successful turnaround plan - pulled the company back from the brink and her departure in late November briefly pushed the shares below the 110p level. The Fosun deal allowed the shares to regain the 140p level and they are pushing a little higher today following a solid trading update released earlier.

Thomas Cook despite the Fosun investment is still in a proving up mode as far as most institutional investors are concerned. Trading inline with management expectations, positive statistics about summer 2015 season sales and continued cost reduction initiatives all read well. A forward 12 times P/E valuation is in my view not expensive and the 52 week high stands at a share price around 25% higher than today's.

Travel is a competitive area but as validated by the Fosun stake build Thomas Cook appears to have the necessary assets and interests to thrive. I would follow the Chinese and buy Thomas Cook shares.

Disclosure: I do own shares in Thomas Cook



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