TCG starting to cook?

Thomas Cook Group, TCG (SP=18.25p, MCAP=£159.7m)

Thomas Cook Group (TCG) closed at 18.25p this evening, having broken up through the flattish 200 day moving average. This follows an interesting Pre-Close Statement last Friday (28th September), which suggested that business had improved - with late foreign holiday bookings being a strong factor.

You may remember our previous Blog Post on 19th July 2012, when we asked if Thomas Cook was turning? Well, here at DIY-Investors, we now feel that the balance of evidence is showing that this  might well be the case. So, if this is the start of a long road back to recovery for TCG, let's take another look at the evidence...

Technical Analysis

The Long Term graph doesn't make a pretty picture, as you can see:

Having fallen, from 297.5p (6th May 2009) to 10.2p on 22nd November 2011 (a drop of 287.3p, 96.57%) in two and a half years, TCG has been bumping along the bottom for some weeks.

Fundamental Analysis

Trading the breakout of such a battered stock carries risk and potential reward. The Key Metrics (below), illustrate some of the problems facing TCG...

Having turned in a thumping loss last year (£398.2m), the loss is forecast to narrow considerably in the year that has just ended (on 30/09/2012).

Positive Points include:

• High Turnover but low PSR (0.16)
• Well established brand name (at least in most peoples eyes!)
• Cash-flow per share still positive last year, compared to eps (22.87p - v - 0.84p)
• Long-Term Funding in place - see Interim Results (May 2012)
• Positive action being taken to reduce borrowing (such as selling TCG India).

Negative Points include:

• High (and increasing borrowings)
• Net gearing has been rising for past 5 years
•  The squeeze on household expenditures may adversely affect discretionary spending (such as holidays)

 Recent Price Action (and Analysis)

The recent share price action, since the panic dump of November 2011, is worth looking at in greater detail...

You can see above that the price has clearly responded favourably to the pre-close statement last Friday. Note in particular:

• Increased volume in past two trading days
• Higher average volume last 10 or so trading days
• Buy signal on the ADX indicators (although I would like to see the 14 day ADX value higher)
• RS (against the FTSE 350 Travel & Leisure) has turned up, from a low position
• OBV has turned up
• Improving news recently (disposals etc)
• Horizontal Trading range of past 10 weeks has been broken to the upside

As usual, we all have to make up our own minds as DIY-Investors but the signs look promising!

Let us know what you think!

Is Thomas Cook Turning?

Thomas Cook Group (LSE: TCG), closed last night at 16.0p - giving a MCAP of £140m for a Company turning over in excess of £9Billion a year. What caught my attention was the clear breakout from the downtrend (see below)...

In terms of fundamentals, the Sharescope Key Metrics (below), show clearly what has been happening...

From this, you can see that the PSR(h) is only 0.014 (MCAP 140.0m / T.O. £9808m) and the PSR(pr) is 0.015 (MCAP £140.0m / T.O.(pr) £9662m), reflecting it's recent past history.

Surviving the challenges of the recession is the game for Thomas Cook and making money from successful turnarounds is one the great ways for DIY-Investors to beat the markets. So what are the factors that we should take into account in making our decision about whether to invest or not?

Well, from my research this morning, here is the position as I see it:


Technical Analysis

Having suffered a drop from 272p (Spring 2010) to the recent low of 10.2p (22nd November 2011), with a fall of 96.3% in the past 28 months or so (see below), the shares in TCG can truly be said to be "out of favour" with the smart city money.

However, there is a clear breakout from the downtrend, coupled with the following signals which you could argue are the first indications of a change of sentiment (and possible opportunity for us DIY-Investors). The short term graph (below) is very interesting!

From the initial breakout (above the 50 day m.av.), the price drifted back, went sideways but then met resistance from the downtrend line until Tuesday 17th July, when it broke through. It did this very "quietly" with no great volume to announce this to the World. Yesterday, it followed with another tick up, with slightly increased volume (but still nothing to shout about).

However, what sealed it for me was the very slight twitch (up) on the OBV, coupled with the buy signal on the ADX indicators (lower two secondary indicators above). The RSI also started to turn up.

The Debt Problem

TCG have made it clear that lowering debt has been made a priority and the Shareholders Approval (29th May 2012) to "Life Saving Asset Sales", coupled with the appointment of Harriet Green (previously boss at Premier Farnell) as the new CEO to mastermind the recovery (or should it be resuscitation?).

The proposed sale of its Spanish Hotel Chain and a 77% stake in Thomas Cook India, together with proposed sale & leaseback of some aircraft might just be enough to allow the patient to breath.


Summary

There is clearly a lot of risk in investing in TCG but having just re-read Peter Lynch's book "One Up on Wall Street"  during my recent (wet) holiday in Cornwall, I can see potential reward too!

As ever, please "Do Your Own Research" and make up your own mind on this!

Mick.