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Citigroup has revised its original worthless rating

Citigroup analyst James Ainley has come out with a share valuation of just three pence for Thomas Cook shares. This follows a rescue plan by Fosun International Holdings for the troubled British travel company which has a share dilution proposal on the table. Ainley is questioning whether holders of Thomas Cook bonds will accept this. Ainley has keept Citigroup’s sell recommendation in place and thinks Thomas Cook will be forced to sell fewer new shares then it is proposing. Thomas Cook shares were down over 60% since the rescue proposal was unveiled on Friday.

Institutional investors are still very bearish

Data from artificial intelligence specialist Irithmics reveal that investors in Thomas Cook stock remain heavily bearish about the company over the long term. There was a slightly more positive sentiment over the short term. Institutional investors had been expecting some kind of rescue plan but the data does not incorporate any changes to sentiment following the announcement of the Fosun plan.

Big questions remain about the airline business

There are a number of big questions that remain unanswered by the deal, which many shareholders will not be happy with. The sale of Thomas Cook’s airline remain one of them – the company was planning to get rid of this as part of the deal. Given the current environment, this may be easier said than done. Thomas Cook management has recognised the “progressively more challenging market environment” as Brexit and the weaker pound continue to nibble away at travel industry profits. Fosun would like to have the whole business, including the airline, but there remain question marks over whether this is really affordable.

Holiday makers are staying away

According to the latest trading update things are not improving at Thomas Cook. Customers are obviously avoiding the company like the plague – British holidaymakers know what happens when you get stranded by the collapse of your tour operator or airline. They have learned this from painful experience. Monarch anyone? Thomas Cook said airline bookings were down 3% overall with weak margins due to intense competition and promotional activity. Management is predicting uncertainty ahead for the business, which we would regard as a bit of an understatement.

Thomas Cook debt has gone up in price

Thomas Cook’s corporate debt actually rose in price on the news of the proposed Fosun rescue plan, climbing 5% on Friday. New debt facilities have come online, which will keep wheels moving. This addresses short term concerns that surrounded Thomas Cook’s working capital outflow in Q1 next year. According to fund manager Kames Capital, the likely scenario now is that Thomas Cook’s bank and bond debt will be converted into equity, removing debt from the balance sheet. This will help to keep the business alive and will mean bond holders still get something out of the mess.

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Stuart Fieldhouse

Stuart Fieldhouse has spent over 20 years in journalism and financial communications, including six years as a wealth management correspondent for the Financial Times group, covering capital markets and international private banking, and as an investment banking correspondent for Euromoney in Hong Kong.

Stuart has worked as head of content at CMC Markets, supporting the re-launch of its global financial spread betting and CFD trading platforms. He is also the author of two books on trading, published by Financial Times Pearson. Stuart continues to work with hedge funds, private banks, stock exchanges and other financial institutions on their communications, data and marketing requirements.

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