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Yes if they bid for the whole company - if they buy a division and pay TCG for it, it won't matter what price they pay.
They will structure it that they won't have to pay for it. I wouldn't waste any time analysing it from that angle.
Garet,
you want Lufthansa to buy TCG to take out capacity for their benefit and everyone else's benefit. That usually doesn't bode well.
Slots - yes they are valuable. But if the slots are allocated for TCG customers they suddenly become less valuable. TCG have said they want a strategic partnership with a future owner. Slots are less valuable in this context.
Also are the slots worth more than the reported 750-1bn for the airline business. That range of valuation is based on using the slots. You can't value the airline at £1bn and then value the slots on top. Can't use the slots twice.
So overcapacity in the market is the reason given by Lufthansa for the profit warning, so you want them to buy MORE capacity.
I fear the airline won't be sold at all - TCG will not get a valuation high enough to justify the sale.
And an awful lot of people posting here with more than 100+ posts with limited additional views.
The post re: the bank potentially selling their debt is news - don't shoot the messenger for sharing the information.
Go and buy the bonds at 40% of face if you think there is value in the Company. 2.5x your money for par recovery plus coupon before the equity gets anything.
Shouldn't you be glad to be in receipt of all the information in the market before making a decision. A bank, maybe with privileged information is happy to sell some of their debt at 50c. They are 10% of the new facility and have indicated they want out.
Might be other reasons for the exit, i.e. internal capital issues, or it might be they don't like the risk of the Company.
(Bloomberg) -- One of the several banks that agreed GBP300m secured loan to Thomas Cook is seeking to sell its exposure to the company, according to people familiar with the matter, who are not authorized to speak publicly on the transaction.
Distressed debt desks are marketing portions of credit facilities from an unnamed bank, including:
~GBP30m of secured loan at par
~GBP50m of revolving credit facility at about 50% of face value
~GBP25m of letter of credt at about 50%
Secured loan total GBP300m, agreed in May, available from October to June if company shows progress in sale of airline
A spokesman for the company declined to comment
MORE: Thomas Cook Bondholders Pricing Massive Loss Even With a Deal
--With assistance from Lucca de Paoli. To contact the reporters on this story: Luca Casiraghi in London at lcasiraghi@bloomberg.net; Antonio Vanuzzo in London at avanuzzo@bloomberg.net
I don't get the strategic value of TCG to Fosun. Chinese tourists is on the increase but they don't want to go to the European beaches. They want to go to city breaks and experience European culture. This isn't the part of the market that TCG are strong in.
Club Med as an international brand travels well in Asia - TCG is a strong brand but not sure the two are comparable. Fosun haven't increased Club Med's presence in Europe from my understanding.
Ambly,
I just can't see how else you get the profitability to turn around. 13k staff in tour operator generating £60-70m EBIT. Something has to give. On reflection, majority was a rash word. But I think margins are waiver thin at the moment and don't see much improvement.
I hope there isn't redundancies. Can't get my head around Fosun to be honest. Just don't get it.
But given the level of profitability I find it near impossible to construct a post airline sale balance sheet that doesn't require some equitation.
Jedclampit,
You can value the airline as a going concern _ which I do - giving me a figure somewhere in the reported £750-£1bn range. My point is you can't then add the value of the slots on top of that. You either value it as a liquidation (the slots value) or going concern. Not both.
Please re read my message - It might be down to interpretation (English is not my first language) but I value it as a going concern - (but by using that process, I don't add the value of the slots on top - i.e. the going concern value requires the slots to get the going concern value!).
Fair point re: misquoting number of employees. picked the wrong number from the annual report.
I would expect TCG to be taken over by a competitor and in that scenario economies of scale would result in significant job losses int he Tour Operator side.
Lets forget slots - slots are only of value if the business is taken over not as a going concern. The market is valuing the airline business as a going concern in the £750-1bn value range. If under liquidation, you would sell the slots and possibly get similar valuation. But you get one or the other.
Other reason not to value the slots, TCG needs the new owner of the airline to partner with the Tour Operator, otherwise they won't be able to get the 10m customers to their holidays.
Re: employees coming on here reading negative news. Please stop coming up with reasons for people not to post negative views. The views I post are backed up with some numbers explaining how I come to my view.
Of the 21k employees, 13.5k work on the airline side of the business - Part of the business I believe will be sold as going concern and majority of these employees will retain employment.
On the Tour Operator side, I again think they will continue to be employed - possibly not a majority as I don't see a need for so much high street presence.
But fundamentally, I don't see enough value in the combined businesses to prevent either a debt for equity swap on the bonds or a sell down of the businesses leaving zero distribution for the equity.
The flip side of negative comments causing concern for employees is over positive comments causing people to falsely invest.
As a side, I use other parts of this forum (on Hurricane and Kier etc). I don't post as I haven't done enough work. But I like when people post informative pieces. I hope to do it here as a "payback' as such. I don't have any position any more in the shares, but reestablished my short position in the bonds.
sfletcher78 - you believe break-up value -
OK so what do you think the Tour Operator is worth breaking it up - The business is likely only to make £60m EBIT in total - why would anyone pay massive amount for this. 20m customers who TCG makes £3 per customer. Ryanair makes €9 a customer and they only fly people.
Where is your analysis - or are you blindly just believing?
I see many comments stating that the Airline is worth £800-1bn. Which is a fair to full valuation in my humble opinion.
But lets use £1bn for analysis purposes.
With £1bn, the Company will need to pay down related financing - aircraft and lease debt - totalling £236m. Plus some fees and tax - £50m - so net proceeds £714m.
So with that they pay down the revolver etc. plus with inflow of H2 cashflow, should leave them at September 2019 with c. £800m of cash and £1bn of bonds, so net debt (excluding WC) of £200m. Working Capital outflow from Sept-Dec totals £1bn+ in previous years, but with no airline, £800m. Leaving the business at Dec with £1bn of debt.
This £1bn of debt is supported by EBIT of the Tour Operator of £60m (LTM is currently £88m).
50p share price is £770m of market Capital, so with the debt of £1bn, valuing the business at a hefty 29x EBIT.
Or if I am generous, use Net Debt figure from Sept of £200m = 16x.
TUI trades at 4.5x September numbers.
Using 5x = gives 7p a share.
Where is my analysis wrong?
I would expect if Fosun make an offer it will be cash only offer. They will not want minority shareholders and difficult to do a share offer given that Fosun is listed outside European Area - not impossible but more difficult.
But the Company might sell two divisions for various tax reasons, so sell the airlines and sell the Tour Operator and the cash comes into TCG (who has no real assets left), who will then liquidate the Company. This way Fosun are not buying debt obligations.
JODO,
Net Debt and Working Capital are separated by all companies. Usually not an issue for a Company but Working Capital is so seasonal for TCG it makes it necessary to adjust the Net Debt for this. You don't have to but most professional analysts will.
But in the interest of balance
Thomas Cook – c. £1.9bn Base Case Break-Up Enterprise Valuation
Rupesh Tailor, Everest Research, 10 June 2019
As per our note from last week, we see a going-concern break-up of Thomas Cook as more likely than a near term administration or CVA. Our base case break-up enterprise valuation (see/expand charts below) of Thomas Cook comes out at c. £1.9bn, leaving £677m equity value or £0.44 per share compared to the current share price at c. £0.19 per
share. Our bull case break-up enterprise valuation is at c. £2.4bn, valuing the shares at c. £0.76 per share
Specifically, we see a break-up into all or some of the following constituent parts (some of which may themselves be broken up further):
(1) the Group Airline (potentially excluding Thomas Cook Airlines Scandinavia A/S);
(2) the Northern European business (both the tour operator and airline businesses), for which private equity firm Triton has submitted a bid; and
(3) the remaining UK and Continental Europe tour operator businesses (Fosun is in discussions currently to acquire the Group Tour Operator business)
We have valued the synergies between Fosun’s Club Med business and Thomas Cook’s Group Tour Operator business based on Thomas Cook’s distribution capability increasing Club Med’s occupancy rate to (eventually) 72% (from 66% in 2018) in our base case and to (eventually) 78% in our bull case and the resulting increase in our DCF valuation of Fosun Tourism Group’s (FTG) Club Med business (which FTG reports under as its “Resorts” segment
sfletcher78,
Fair point - and ultimately that is the decision that has to be made - Can a different management company with the quality of the brand etc be able to drive better profitability.
Ultimately we don't all agree. I for one don't agree it will be more than the current share price. And the reason for my belief is the level of debt and the profitability of the business.
Quisty,
The EBIT figure is taken from pg 12 - Overall Group is 250m, Tour Operator is 161m as I state
I was trying to see what the remainder of the business of TCG once they sold the airlines. I can't use the figure you quote as they don't segment that data - they do for EBIT, hence using EBIT. I agree it can be manipulated, but in the absence of other better data I used EBIT and EBITDA.
But it doesn't distort my analysis about the level of debt post sale of airlines.
I accept performance over the summer might be better than last year, which is your premise (I think). But it isn't just about number of customers but the profitability of those customers. And the only guidance I can get is from the Company who stated excluded SDIs it will be lower than previous year.
jedclampit,
It is an issue for TCG as they are so seasonal. So you have to have enough cash for the trough period. In my original post I didn't over penalise them, I just used December net debt figures (excluding the negative Working Capital at that time).