Thomas Cook, the FTSE 250 tour operator, has been offering so-called Black Friday discounts a few days early, according to tabloid newspaper bargain hunters. And, given every Friday from now until May is forecast to be largely black from 3:00pm to the following 2.55pm, one can see the appeal of £200 off a sunshine break. But such early price cutting is normally a warning sign, according to broadsheet newspaper profit-warning hunters. So does it mean red ink, rather black, for the company?
Not so, Thomas Cook said this morning, as full-year revenues showed good growth: rising 9 per cent to £9bn on a like-for-like basis, adjusted for foreign exchange – against analyst estimates of £8.5bn.
And it says the outlook for holiday bookings to the Middle East and North Africa has continued to recover, reporting “good growth to Turkey and Egypt” despite terrorism worries depressing sales in recent years. Thomas Cook has also added some new routes to its airline operations following the collapse of rival Monarch earlier this year.
As a result, underlying earnings rose by £24m, or 8 per cent, to £330m. Thomas Cook put it down to increased customer demand and customer satisfaction. Performance was strongest in the group’s Continental Europe and Nordic divisions.
However, competition in the UK is taking its toll – and perhaps explains those Black Friday offers.
After four consecutive years of profit growth, margins in the UK business declined due to a tougher pricing environment, especially for holidays to Spain. Overall, the full-year gross margin fell by 1.3 percentage points to 22.1 per cent.
Thomas Cook has work to do here, and it had already implemented plans to return the UK tour operator business to “its former profitable growth trajectory”. HSBC analysts recently calculated that even a 50 basis points improvement in margin has the potential to increase earnings per share by more than 5 per cent in FY2019.
Still, analysts seem to have packed their sunglasses already. This week, Panmure Gordon ditched its “sell” rating on Thomas Cook shares. Earlier, HSBC initiated its coverage of the group with a ‘buy’ – arguing that is the “recovery/ value play” in the sector trading at a near 50 per cent discount to its rivals.
Biffa, the waste management group, sets it horizons a little lower: its idea of a picture postcard landscape features more energy from waste plants.
At a recent analyst session for the launch of its review of UK waste industry – called “The Reality Gap” – management repeated that it sees a continuing need for EfW plants in the UK. And this morning , Biffa said its EfW project feasibility assessments were “progressing as planned”. More news will be given in its annual results, next year.
Its half year results also showed a strong performance in line with expectations, as net revenue rose 8 per cent to £482m.
Underlying earnings before interest tax, depreciation and amortisation therefore rose 7 per cent to £76m – ahead of Peel Hunt forecasts of £71m-£72m.
That leaves the group’s shares trading on 6.5x FY2018E EV/EBITDA multiple.
And, finally, in Westminster today, a dull grey-haired man in a grey suit is expected to stand up, speak for 53 minutes, take three sips of water, use the word ‘million’ 28 times, make four references to ‘student loans’, promise 300,000 new homes, reduce the stamp duty charged for buying them, bemoan the UK’s useless productivity, attempt to avoid a Brexit economic “cliff edge”, and later be sacked by his boss. At least, that’s if the bookmakers can be believed. Or a bet afforded, after taxes go up.
Happy Budget day. It doesn’t get blacker than this.
Today’s Lombard column focuses on EasyJet’s ability to benefit from rival airlines’ demise:
As late-night Stansted habitués will attest, flight EZY217 to Glasgow is often the last one standing on the tarmac. But for operator EasyJet, being one of the last European low-cost airlines standing is anything but an inconvenience.
In the seven years since Dame Carolyn McCall became chief executive, data from website protectmyholiday.com suggests the company has outlasted more than 100 rivals — including Monarch, Alitalia, Air Berlin, VLM, Moscow Airlines and Lufthansa Italia. Not to mention Norfolk Air. And, although Dame Carolyn is now boarding the shuttle bus for a new job at ITV, the staying power bodes well: after four years of falling fares, it means easyJet finally stands to benefit from less capacity in the short-haul market.
Read the rest of today’s Lombard column here.
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