Thomas Cook unveils favourable outlook, capital restructuring

Travel company Thomas Cook has unveiled a 2.6% drop in interim revenues, to 3.224bn pounds despite what management described as "encouraging current trading with strong bookings and gross margins," while at the same time managing to reduce costs ahead of schedule and providing a favourable outlook for prices and margins.

As a result analysts at Credit Suisse have revised their fiscal year 2013 earnings per share estimates for the firm by 41%.

The company also announced its intention to restructure its liabilities - its capital structure - which will see the average maturity of its debt increase while decreasing its overall leverage. Above all, this may reflect new found confidence from the firm's debt holders in the firm's prospects.

Interestingly, Credit Suisse added that their estimates do not reflect any element of the planned re-financing.

Michael Healy, the group's Chief Financial Officer (CFO) called attention to rating agencies Standard&Poor's and Fitch's recent upgrade confirmations as part of this refinancing of the company's debt, while arguing that it will bring forward the time of a return to sustainable dividends.

For the first six months of the fiscal year earnings before interest and taxes (EBIT) improved by £58.7m to -£197.5m, when compared with the same period of a year ago.

Underlying gross margin on a comparable basis improved by 110 basis points to 20.7%.

Company raises cost reduction targets

In that same vein, the company increased its total 'cost-out' and profit improvement target for fiscal year 2015 from £350m to £390m, reflecting a further £40m of benefits that have been identified as being deliverable from existing initiatives.

Underlying free cash flow improved by £198.1m.

Net debt declined by £175.4m, to £1.21bn, primarily reflecting better working capital management processes.

As part of its capital refinancing the firm will issue €525m (£441m) in new 2020 bonds, while at the same time issuing a fresh £425m of new equity and rights.

Thomas Cook has also obtained access to £691m of new credit facilities.

The Placing and the Rights Issue are subject to the approval of Shareholders at the General Meeting to be held on June 3rd.

Thomas Cook's liquidity headroom had improved to £512.1m by the end of last March, versus £323m one year ago.

Worth pointing out perhaps, Thomas Cook trades on an estimated Sept 2014 price-to-earnings (PE) ratio of 7.7 times, falling to 5.7 times in September 2015. TUI Travel trades on a Sept 2014 PE ratio of 11.2 times and 10.6 times in 2015.

As of 08:21 shares of Thomas Cook were rising by 8.15% to 156.5p.

AB