Thomas Cook shares crash 40 per cent after Citigroup urges shareholders to sell
Thomas Cook’s shares collapsed for the second day running today after a broker downgraded the struggling company the day after it revealed a £1.45bn loss.
Read more: Thomas Cook shares crash as it suffers 'grim' £1.45bn loss
The embattled travel agent’s share price plummeted 40 per cent to new lows of 11.8p this afternoon after issuing another profit warning yesterday.
Citigroup advised shareholders to sell out of the firm this morning and set a 0p target price, claiming the holiday company's shares are virtually worthless.
Shareholders sent its stock closing almost 15 per cent down yesterday but almost triple that today.
Stripping out yesterday’s £1.1bn writedown of its My Travel acquisition made over 10 years ago, underlying losses rose to £245m in Thomas Cook’s half-year results while net debt hit £1.25bn.
It also warned that Brexit’s impact on Brits’ appetites for summer holidays and higher fuel and hotel costs will hurt profits this year, with earnings expected to fall below their 2018 level.
“Yesterday, management had stated that they had received multiple bids for its airline assets,” said Michael Hewson, chief analyst CMC Markets.
“The calculation here would appear to be that debt levels of £1.25bn are likely to result in a fire sale of assets unless the outlook for the business starts to improve quickly. Investors appear to be losing confidence in the ability of management to turn the ailing business around.”
Thomas Cook did report that the sale of its airline division is progressing well, with Lufthansa, Virgin Atlantic and Aviation investor Indigo Partners all interested parties.
But yesterday analysts warned the company remains “a hostage to fortune” with an “unwieldy” level of debt, which has risen £361m to £1.25bn.
“A number of factors are piling on the pressure including a vicious holiday price war, rising fuel prices and Brexit uncertainty, plus the fact that other areas of the business simply have too many high street branches – which continues to dent profitability,” Begbied Traynor partner Julie Palmer warned yesterday.
“Although it says it has received multiple bids for its airline in the current climate with an environmental movement suggesting people are trying to make fewer journeys via air, the number of potential investors and the amount they are willing to pay could start to shrink.
“This means Thomas Cook’s need to sell its airline business to balance out the books will become increasingly urgent as time runs down to get the best price.”
Thomas Cook’s shares have now plunged 91 per cent over the last 12 months from 139p in May 2018.
The Share Centre warned that factors such as terrorism, strikes, currency movements and oil prices have left airlines with little control over their futures.
Read more: Thomas Cook shares gain altitude as Virgin Atlantic joins bidding war
“This makes life difficult for management in their quest to grow the business especially with regards to upgrading their fleet,” investment resrach analyst Graham Spooner said.
“But demand for travel is not going to go away, so long-term investors in the sector should hopefully be aware that it will be a bumpy ride and is likely to remain so in the foreseeable future.”