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Here’s what I’d do about the Thomas Cook share price slide

Alan Oscroft
Plane on runway

Shares in Thomas Cook Group (LSE: TCG) have gone into a tailspin over the past week or so, after having surged by 180% between their low on 30 July and 5 August. They’ve now lost almost 50% of that peak value, after news emerged that the troubled holiday firm is going to need £900m in cash to see it through the winter — £150m more than the £750m previously expected.

Shareholders dumped their shares in the dawning realisation that they’re being diluted out of it, and fears are growing that current owners’ stakes could be worthless. But the only thing that surprises me about any of this is that anyone was at all surprised.

Misplaced optimism

There are some hopes that a new interested party, Turkish investor Neset Kockar, might come up with a better rescue deal than the current plan being hammered out between Thomas Cook and major shareholder Fosun. But I really can’t understand why small shareholders even care.

When an investment has crashed and you’re left speculating over which possible rescuer is more likely to leave you with a few crumbs, I think you’re missing the big picture. It’s like juggling a hot potato and trying to decide which hand it will burn less — just drop the potato!

Whatever the shape of the final rescue, lenders will be way ahead of shareholders in the queue, and my colleague Roland Head sees the shares falling as low as 2p or even lower. If anything, I think he could be optimistic, and if I had any shares I’d be selling them for whatever I could get.

Contagion

Looking at the wider travel industry, the grounding of the world’s Boeing 737 Max fleet has hit profits at TUI Travel (LSE: TUI), as Tuesday’s Q3 results revealed — and Brexit fears didn’t help much either.

Earnings fell 46% from 2018 Q3, to €100.9m, but at least we didn’t get any further profit warnings to follow the couple we’ve already had this year, and the firm’s outlook was maintained. The company is still expecting a 26% drop in full-year underlying earnings.

Analysts are expecting TUI to bounce back next year, and we’re looking at a forecast dividend yield of almost 8% now. But I wouldn’t buy, for several reasons, not the least of which is that I don’t see that dividend as being one of the safer ones.

Wait for it

I also don’t take recoveries as given these days, and I increasingly want to see the hard financial facts of a turnaround being actually under way before I’ll consider buying. Sure, I’ll miss the bottom that way and might buy in at a higher price — but I’ll hopefully avoid the dead dogs.

My biggest reason is that I just don’t like the nature of such a high-risk, asset-intensive, business. But TUI is gearing to move itself more towards the online business of selling holidays and away from being the full package operator it is today, and I reckon that’s a good plan.

Leave the hotel chains to do the accommodation, leave regular airlines to fly people around, and act as the online intermediate to link the things together. That’s the only kind of travel agent I’d buy, but TUI is a long way from it yet.

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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