British holiday operator Thomas Cook said a £45 million disposal helped it reach a sell-off target ahead of schedule, giving it further confidence in its turnaround efforts.
Thomas Cook is half-way through a three-year plan to cut jobs, close branches and sell businesses after the eurozone debt crisis, high fuel costs and political turmoil in Egypt and Tunisia brought the world’s oldest travel firm to its knees in 2011.
We are delivering what we said we would deliver
Reporting a narrowing seasonal loss, the company said summer bookings were developing in line with its expectations. Bookings for summer holidays are watched closely as they generate the bulk of the firm’s earnings.
The agreed sale of Gold Medal, a distributor of scheduled flights, hotels and car hire, to Dnata, a unit of the Emirates Group, for £45 million, brings the proceeds of disposals to £125 million, the company said yesterday.
It had set a target to make £100-150 million from divestments by the end of next year.
Thomas Cook, founded 173 years ago, reported an underlying first-quarter operating loss of £56 million in the three months to the end of December, 15 per cent less than a year earlier.
Cost savings offset the negative impact of Egypt, where unrest has put customers off from holidaying there this winter.
The confident statement echoed the guidance of Thomas Cook’s larger rival TUI Travel, which last week also reported a smaller quarterly loss and said it was seeing strong demand for summer holidays.
“Given Thomas Cook’s superior self-help opportunities and growth prospects, we think Thomas Cook should trade on at least the same multiples as TUI Travel,” broker Jefferies said, explaining that its 200 pence target price is based on Thomas Cook trading on the same multiple as TUI Travel.
“Thomas Cook trades for now at a ratio of 11 times estimated 2015 earnings, while TUI trades at 12.3 times,” Jefferies said.
The company issued successive profit warnings in 2011, sending its share price plunging as low as 8 pence and forcing it to scrap its dividend to help cut debt.
In late 2011, it asked lenders twice to come to its rescue as it struggled with its debt load amid tough trading conditions during its seasonal low period.
Under the turnaround, begun by chief executive Harriet Green, who joined in July 2012, the stock has more than doubled over the last year and is up over 30 per cent in the last three months.
“It’s been a very good performer. The thing about these kind of stocks is they tend to need upgrades to drive the price,” Shore Capital analyst Greg Johnson said.
Green told reporters on a call that the company was seeing customers returning to Egypt but not yet in the numbers seen previously.
“We are delivering what we said we would deliver,” she said, adding that the company was confident of achieving all its targets.
Thomas Cook announced plans last November to cut costs by £440 million by 2015 and said on Tuesday it had also found additional cost savings that it would detail in May.