I recently took a look at the big share price fall at Thomas Cook Group (LSE: TCG) following on from its dreadful interim results a few days earlier.
There are fears that, in the light of the company’s troubles, potential customers will stay away and that this could create a further downwards spiral.
But after losing more than 90% of their value in 12 months, Thomas Cook shares leapt 20% on Tuesday morning. There’s little concrete news, but there is a lot of speculation over the firm’s recovery direction after meetings with major investors before the bank holiday.
While a move to farm out its aviation services to other airlines once the sale of Thomas Cook Airlines completes is clearly on the cards, there are big hints the firm will move to become more of an online marketplace. After all, about the only upbeat thing to come from those first-half results was the increasing number of customers booking online.
The company is still expected to maintain its chain of hotels, but the sale of other assets (including the airline) should raise significant cash to help with that massive net debt (which stood at £1,247m at 31 March). We’ve had confirmation of interest in both its airline and its Northern Europe business.
Thomas Cook shares are still on a P/E rating of only around four, and that looks like it’s priced to go bust. I’m fairly confident that Thomas Cook will survive, but I have fears over how much will be left for current shareholders once the balance sheet has been shored up. I’m still steering clear.
The other big winner that has caught my eye Tuesday is Oxford Biomedica (LSE: OXB), whose shares are up 10% on the day as I write.
I’ve had my eye on it for some time. The gene and cell therapy researcher finally turned in a profit in 2018, and this year investors have been cautiously pushing up the share price. We’re looking at a 16% gain since the end of 2018, though admittedly that’s mostly been due to this one-day rise.
The driver of the price spike appears to be an agreement by Novo Holdings to invest up to £53.5m in Oxford Biomedica, with an issue of new shares amounting to around 10% of the enlarged company.
As well as going partly towards the further development of the firm’s LentiVector gene and cell therapy platform and its product portfolio, the cash will also enable Oxford to “repay the existing debt facility with Oaktree Capital Management in full.”
A couple of years ago, the business looked like a cash-burn, blue-sky prospect, albeit one with promising prospects in a key new biotechnology market. Today, we’re looking at a profitable company with a soon-to-be solid balance sheet and much reduced risk.
The share price has trebled in those two years, but I can’t help feeling the risk to reward balance is more in investors’ favour right now and that the full potential is not reflected in the current share price.
We’re looking at a P/E multiple for 2020 of 30, which might look high. But that’s based on early profits, and I could see it coming down rapidly in the next few years. Oxford Biomedica is on my shortlist.
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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