One analyst described Thomas Cook Group’s trading update as “lacklustre”. There was certainly not a lot to get excited about.
The current winter season is now pretty well all sold, which is as one would expect. This summer is about half-sold, again as one would expect, even if the rate of forward bookings is a touch ahead of this time last year.
The two weak areas, continental Europe and northern Europe, are improving gradually. The rate of decline in summer bookings in both has slowed in comparison with the last reported figure. Bookings from northern Europe are lower after Thomas Cook took some capacity out and because of the weakness of the Norwegian economy.
There is nothing here to upset the market. The company has two improvement initiatives in place: Wave 1, which aimed to cut costs by £500 million, is nearing completion; Wave 2, the other initiative put in place by Harriet Green, the departed chief executive, to promote efficiencies by merging different platforms, will be in place by 2018.
This is all well and good, and it indicates that Thomas Cook is still recovering strongly from its near-death experience three years ago. It rather pales into insignificance, though, against the news last month that Fosun, the Chinese travel business was taking a 10 per cent stake. Fosun, which also bought Club Med this year, had already injected £92 million for a 5 per cent stake and will buy the rest in the market in due course, which suggests some continuing support for the shares.
The implications of the deal are hard to assess at this stage. Fosun will fund the creation of a fund of €350 million to €500 million to buy hotels to which Thomas Cook would have exclusive access.
There is the option to import more Chinese tourists into Europe and, in the longer term, for Thomas Cook to become involved in the domestic Chinese travel industry. There should be easier access to Club Med resorts for its customers.
The stake means that henceforth the shares will trade on a premium that reflects the chance that the company will be bought outright. Up 2½p at 145¾p,they sell on 13 times earnings. Buy for the long term.
10% rise in online bookings
10% Eventual holding by Fosun in China
MY ADVICE Buy long term
WHY The turnaround is progressing, if slowly, but the benefits of the Chinese stake could be transformational in due course
It has to be said that of all the scrapes, crises and holes that Gulf Keystone Petroleum has found itself in over the years, the present one looks the least attractive.
The company has raised $40.7 million through a placing of shares equivalent to about 9 per cent of the equity, which will keep the wolf from the door for another four months or so. That, however, is on the assumption that 75 per cent of the owners of its 2017 bond vote in favour of altering its terms by end of business today. They probably will; if they do not, Gulf Keystone may have to find $250 million plus interest on that bond by the end of September, and the placing does not go through and it runs out of money well before that. Add to this uncertainty over payments from the Kurdish authorities for production from its Shaikan field there — oh, and the $350 million it would cost to take that field to the next stage of production.
The company is looking at financing options, essentially either a sale of part of Shaikan or an outright takeover. This would be against the low price of oil, although the field has a life of 35 years. The shares, off 4p at 36½p, could be a very clever call. Personally, I lack the courage.
Current cash balance $86.3bn
MY ADVICE Avoid
WHY The risks are still too high over future financing
Mitie Group is insisting that yesterday’s trading update, unscheduled and designed to reassure that there was no more red ink from its exit from construction, was not a profit warning, even if it admitted that profits for the year just ended would be “slightly” below expectations.
With some analysts cutting earnings forecasts for that year and the one just beginning and the shares, off 6 per cent last night, one is entitled to reflect on ducks that are both waddling and quacking. The trouble was that the market was inclined to ignore the good news and the 85 per cent of the group in facilities management that is trundling along well enough, and focused, instead, on the underperforming homecare and social housing side.
Mitie got into homecare with the 2012 purchase of Enara. Margins in both businesses were falling at the halfway stage and yesterday’s statement indicated further pricing pressure in the second half. Local authorities’ budgets are uncertain and they are seeking better value; Mitie will not go for business that does not meet its expectations and the loss of this inevitably will erode those margins. The question is how far. Some analysts’ estimates look unduly gloomy, but Mitie shares have been a poor market over the past year. Off 16½ at 276p, they sell on about 11 times’ 2014-15 earnings. That looks low, but there will always be concerns that there may be more bad news out there and the election remains an uncertainty.
I would not be buying, even at this level.
Forecast eps for 2014-15 23.8p-23.9p
MY ADVICE Avoid for now
WHY Market will take time to favour the shares again
And finally...
I suggested last week that SuperGroup was in danger of becoming a proper company at last, rather than an overpriced fashion punt. The retailer, in a strategy update to the City, indicated that it would start paying dividends and buy out its American licensee, which would allow further expansion in the States, so helping to justify the high multiple the shares trade on. Euan Sutherland, who joined as chief executive in October, plainly agrees. He has paid £100,000 for a slice of shares, freed to do so after that update.
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