Will Thomas Cook be sunning itself in the glow of investor-adulation following Thursday’s interim results?
Up until very recently 2018 hadn’t been going to well for the holiday operator. While not disastrous, Thomas Cook has spent the last few months drifting lower, from January’s £1.30 highs to March and April’s £1.16 lows.
However, since the end of April things have begun to improve. A string of ratings upgrades from the likes of Jefferies and Credit Suisse (SIX:CSGN), who have the company at ‘Buy’ and ‘Outperform’ respectively, have sent the stock sharply higher. Thomas Cook Group PLC now sits at a current trading price, and 34 month peak, of £1.40.
Last time the firm addressed the markets, investors weren’t too happy with the overall vibe the company laid out. Despite stating that ‘trading for 2018 so far is encouraging’, the main takeaway back in February came from CEO Peter Fankhauser, who lamented a ‘highly competitive – and, at times, unpredictable – market’.
Q1 revenues rose 7% to £1.75 billion, with gross profits up 4.4% to £376 million and bookings rising 8%. However the gross margin slipped 50 basis points to 21.5% due to ‘higher Spanish hotel bed cost inflation’ and ‘a lower mix of long haul sales’ across the quarter. To combat the former issue, Thomas Cook is aiming to re-balance its programme towards ‘higher margin destinations’ like Turkey and Egypt.
In terms of Thursday’s half year update, investors will be hoping that the gross margin didn’t take another dip in the second quarter. They’ll also want to see the continuation of German airline Condor’s recovery, a repeat of that solid Q1 revenue growth in Q2, and a further pivot towards Turkey and Egypt in the company’s summer bookings.
Thomas Cook Group (LON:TCG) has a consensus rating of ‘Hold’ alongside an average target price of £1.24.
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