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Institutional investors in Thomas Cook shares are anticipating positive news around Thomas Cook, a company which has been plagued with poor numbers to date.

The travel firm saw its shares drop like a stone in the middle of May when it reported that many British holiday makers were postponing holiday decisions this year due to Brexit uncertainty.

The travel sector has been an obvious victim of the ongoing wrangling over Britain’s membership of the European Union and the related slide in sterling against both the USD and EUR.

Thomas Cook shares have rallied in the last three weeks, bouncing off 10.30 on 20 May. At the time of writing they are trading at 17.69.

Appetite for Thomas Cook stock is still low among pro traders however. Data from artificial intelligence specialist Irithmics indicates that both long term investors and short term traders are very negative on holding the stock. However, they are expecting it to turn the corner.

Thomas Cook shares plunged after GBP 1.5 billion losses

First half losses at Thomas Cook jumped to almost £1.5 billion – its biggest ever – as it took a £1.1 billion write-down on My Travel. Underlying EBIT losses increased by £65 million to £245 million, which was down mainly to margin pressure in package holidays. Net debt has risen to £1.25 billion.

Thomas Cook is still a long way off its 52 week high of 117. This makes it a very cheap play at the moment. Shares are already on the move following news on Monday that Thomas Cook is in talks to sell its tour business to Forsun International, the Chinese travel group.

An acquisition on the cards?

Forsun is already the largest shareholder in Thomas Cook. Its interest in the ancient brand is part of a long predicted trend that is seeing Chinese tour operators making foreign acquisitions, as interest in overseas travel mushrooms in China. Under EU aviation rules, Forsun is not permitted to acquire the airline that is attached to Thomas Cook. Once the airline is sold, it removes a major obstacle to Thomas Cook’s acquisition by the Chinese.

“As noted on May 16th, when we suggested an approach was in the offing, once the airline is sold a major obstacle to the Chinese group making a bid will have been removed,” confirmed Neil Wilson, Chief Markets Analyst at Markets.com. “Management says it has received multiple bids, including for the whole, and parts, of the airline business. Triton may make life more difficult for Fosun but whatever the outcome, it seems the writing is on the wall after some bad losses and a ratcheting up in debt levels.”

Sadly, it rather looks like Thomas Cook will be carved up in some fashion or other. This may not be a bad thing – clearly managing this large, complex holiday business proved daunting in the current macroeconomic environment. But selling off the various bits of the business is likely to be even more complex.

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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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