Shares in Thomas Cook Group (LSE: TCG) dipped by 29% in early Monday trading, though they recovered some of that loss.
The troubled holiday company reported dire interim figures on 16 May, with the cut-throat nature of the business in these Brexit-darkened times leading to an underlying operational loss of £245m. That was despite flat revenue of £3bn, the company putting the loss down to margin pressures.
With every effort being made to cut costs and turn things around, are we looking at a good recovery investment candidate? I fear not, and I wouldn’t risk any of my money on a company that is shouldering £1.25bn in debt (and rising) while boasting a market capitalisation of only £150m.
Thomas Cook shares have fallen by a whopping 90% over the past 12 months, including a 50% drop since the results announcement last week. That itself will pile further pressure on the firm’s business as potential customers, who are well aware of holiday companies having gone bust in the past, will look elsewhere.
“Business as usual”
To head off the flood of worries being directed its way, the company has been trying to reassure customers that it’s still “business as usual.” On Sunday, the firm reminded us it has “agreed additional funding for our coming winter cash low period,” adding that “we have ample resources to operate our business and at the same time, as usual, our liquidity position continues to strengthen into the summer period.”
It hasn’t helped that Citigroup (NYSE:) has branded Thomas Cook shares as “worthless“, saying that the company’s massive debt suggests there’s zero value in its equity. And the way things look right now, the firm’s lenders do seem to have all the clout.
Bigger recoveries have been pulled off in the past, but for my money, buying Thomas Cook shares now would be nothing more than a pure gamble.
Meanwhile, at a company I cautioned against in January, things seem to be going from bad to worse. Building materials company Low & Bonar (LSE: LWB) shares plunged as much as 31% on Monday, recovering to a 24% fall at the time of writing.
The damage was done by a disappointing Q2 trading update combined with news of the departure of chief executive Philip de Klerk. I think it’s telling that Mr de Klerk’s exit comes with no clear succession plans in place, with current chairman Daniel Dayan set to take on the role temporarily while the “search for a new chief executive will not be initiated immediately.”
The board has simply decided that “a change of leadership is required to accelerate delivery of the transformation programme initiated in late 2018.”
Getting back to the firm’s trading, the second quarter has been stronger than Q1 as anticipated, but “the rate of improvement is below that expected.”
The escalating trade dispute between the US and China is hurting the company, which now says that “first half performance will be materially behind that of the prior half year.”
The balance sheet is a bit of a worry too, with mid-year net debt expected to come in close to £110m, though at the moment Low & Bonar says it should be able to meet its banking covenants.
I’d keep clear until I see material progress in the firm’s transition.
Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2019