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MoneybagsSmythe,
Are you serious. Look at the link I have quoted below -
Net Debt of TCG at Sept 2018 was £389m Cash of £1038m giving Gross Debt of £1427m made up of
Bonds .c. £1021, Commercial Paper 177m, Finance Leases 216m, Other small bits 41m and Arrangement Fees (which is fancy accounting of positive 28m). This all adds up to £1,427m Gross Debt.
No mention of the trade creditors in that number.
However, on page 28 - Trade and other payables was a further £2,314m, and Revenue received in advance (deposits) of £1,390m, with Assets of Inventories of 44m and Trade and Other Receivables of 811m.
These figures are NOT included in the Net Debt figure. i.e. at September they owed £1.5bn in trade payables (net of receivables) and had received £1.4bn in deposits for holidays that hadn't taken place.
Citigroup
This is a repeat of a similar
story in late April and it is not a surprise that Fosun has ongoing aspirations to own
this part of the business. As previously discussed it is unlikely that Fosun would be
able to buy the group in its current form as non-EU entities are restricted in owning
a European airline.
The group is currently in the process of trying to sell its airline which could free the
way for Fosun to acquire the residual business. It seems that Fosun does not want
to wait to acquire the listed entity or indeed that it fears unforeseen consequences
in any restructuring/recapitalisation process (eg Triton’s confirmed interest in the
Northern European business). We suspect this comes from a desire to own the tour
operating business and support its long term future but ideally without paying a
premium for the listed entity.
Although the group has re-organized itself to enable the disposal of the airline we
do not think that selling the core tour operation out of the corporate structure will be
simple. The group still has £1bn of outstanding bonds as well as drawings on its bank
facilities and commercial paper which are supported by the tour operating business.
Bond holder and lender consents would likely be required which may make any
disposal impractical unless alternative security or repayment at par was offered.
Under the current capital structure we continue to see no value for current
shareholders unless Fosun pays a very high price for the tour operator and/or the
group is able to sell its airline at a much higher than expected value (Citi valuation
£600m). Our SOTP target price is 0p (Bull case 27p) per share and within this we
value the Tour operator at 4x FY19 EBIT compared to an historic trading range for
listed tour operators of 4-8x. We estimate that each turn on the tour operator
valuation multiple equates to 4-5p per share suggesting that the current share price
is either valuing the tour operator at closer to a peak multiple or it could imply a
valuation for the airline of around £850m (7x FY19 EBIT). We think a
recapitalization of the business is required.
Barclays -
Since Thomas Cook announced the strategic review of the Airline division in Feb-19, various headlines and speculation have been circling about preliminary bids for all or parts of the Group, (see TCG - Weekend press: Bidders circling Thomas Cook (23/4/19)) including Fosun for the Tour Op or entire business. The company confirmed with H1 19 results that it had ‘received multiple bids, including for the whole, or parts, of the airline business.’ However, uncertainty has remained on a number of topics e.g. whether the Airline could be sold in full or in part, the value of a potential sale, who the acquirers may be and the tour op-airline relationship post-sale. These factors will define the shape of the remaining business and while they are unknown, the Tour Op’s future remains unsure. Therefore, the weekend news reduces t
Ambly,
re reading your statement - "When a supplier is paid your net debt position does not change" This is incorrect as when you pay a supplier your cash goes down so net debt goes up.
see page 20 of their year end statement - https://www.thomascookgroup.com/investors/insight_external_assest/TCG+FY+2018+Presentation+vFINAL+6+Dec.pdf
No mention of working capital.
That is why I mention it in my original post. It should be accounted for so the net debt figures that are quoted by the Company and analysts needs to be adjusted for the working capital. (to its detriment)
Ambly,
It isn't in the net debt figures quoted by the Company - Which is the figure I quote. (and to be fair, all companies exclude working capital from their debt figures, as they are usually unsecured).
But if you want to include them (I try find December figure where it is lowest) all it will do is increase the net debt further and reiterate my point that the debt is unsustainable and requires some debt for equity swap.
Or do you think the Company quoted Net Debt figure includes the suppliers numbers - it doesn't. That is why they have a September year end so if flatters them.
But the deposit lowers your net debt as it increases your cash balances. So TCG net debt goes down. (So I am saying you should adjust this net debt figure and extract these deposits, that is why I use December net Debt figure as it is then when there is the lowest deposits from customers and most of your suppliers are paid)
Ambly,
I think we are in agreement - but maybe some slight misunderstanding. I use December net debt figures as this is the time when TCG have paid their suppliers. That is why I am using the December figure, not Sept. Sept is artificially low net debt as they receive monies from customers but haven't paid their suppliers. (I think what you are saying).
So I use the December figure.
Quisty,
I am quoting EBIT (Earnings before Interest and Tax) which is positive for the Tour Operator, positive at £161m. You are quoting EPS which can easily be manipulated by write-offs etc. I prefer to use EBIT and EBITDA, more likely to be cleaner numbers.
You mention the weather - are you saying that the quote from management about results been worse is incorrect. That management, who is closer and sees the numbers in granular details are wrong? They have an obligation to market to make sure their public statements are accurate so I will use their guidance rather than other sources.
Look at the over capacity issues - despite TCG lowering their capacity by 10% there still is over capacity in the industry, especially in the Spanish market. The weather won't bail them out.
Re examine my post in relation to the debt figures - Try and work out logically how the proceeds of potential airline sale is (I am using someone else's estimate of value - I don't think it will be as high). This leaves the Tour Operator with the balance (and I haven't done anything with the negative £30m of central costs not attached to either Airline or Tour Operator.
The business has too much debt. this is why the bonds are trading below 50c in the euro.
How about this for analysis.
We take £900m for the airline business - mid point of your range. Net Debt as of December 2018, which is the worst level was £1,588m. so take off £850m (£50m fees) you are left with £738m of net debt to be supported by the Tour Operator business.
Tour Operator business made £161m EBIT last year.
"As a result, we now expect underlying EBIT in the second half to be behind the same period last year although, as previously advised, operating profit will reflect significant reductions in separately disclosed items." - Quote from the Company in their H1 numbers. So although they made £161m last year, they are expecting to underperform last year.
Additionally, they lost £300m+ in negative cashflow for 2017/18 year. The Company says this year is going to be worse, but lets just use £300m cash outflow again for 2018/19.
This will leave net debt, everything else the same, post sale of the airline for £900m, at £1,038m.
Supporting this level of debt is at best £161m of EBIT - Most of the Depreciation and Amortisation is linked to the Airline segment, so EBITDA of £170m at best. so Net Debt is going to be 6.0x
People will complain that I am using the worst Net Debt figure, but the other debt figures are flattered by using customer deposits. (Customer deposits is just another form of borrowings, just not paying interest on it).
Working Capital swings could be in the range of £500-600m so Low Net Debt using mid £550m is £488m. Average is c. £760m so £30-40m minimum annual interest bill.
I am unsure that a business like this, post Airline sale, can live with 6.0x Net Debt figure with little remaining assets. (The Hotels are generally held via the Investment Trust, separate to the Tour Operator).
This is over valued and I don't even believe the bonds are fully covered. Expect the bonds to be equitized and heavy dilution for existing shareholders.
Apologies - I meant to reply to the linked news story from 14:00hrs
This cash isn't coming off the balance sheet of Thomas Cook. So not linked to the new bank borrowings or the underlying performance of Thomas Cook. It is from the hotel investment fund and the finance is from the two banks noted in the report.
Basically, it is a property fund investing in their property - regardless whether Thomas Cook continues or not, it is wise to continue to invest in the property.
I would not link this story to the well being or otherwise of Thomas Cook. (It potentially creates value for Thomas Cook's holding in the property Company).
Am covering my short - too much of a gamble in the next couple of days/weeks. I think the banks will come out with another larger RCF to give confidence to the customers - Charge hefty fee for this but realistically the Company should be receiving cash over the next 3/4 months as they enter their profitable period. This is what happened in MyTravel when it was in similar situation. (And TCG got an increased RCF when in hard times before).
I think fundamentally the Company has issues but realistically will generate cash over the next period. The Airline is worth 600-1,000m in my opinion, but I think the Tour operator is likely to struggle into the future. Take the Company stating EBIT is going to less than H2 2018, it still generates cash. Add in the expected Working Capital inflow (not as much as previous years) and the RCF might not be drawn at all at Sept. Worry is Commercial Paper is likely to be unavailable in the current environment.
I hate the vitriolic nature of some of the posters. I believe we are all better investors if we share information.
I have mentioned this before - the pension fund is in surplus at Thomas Cook UK. The liability sits at Thomas Cook Germany (mainly at Condor, the airline segment).
It is normal for German Companies to have liabilities for pensions as they don't prefund the pension. They pay social security taxes and the liability sits with the government.
So of all the problems Thomas Cook has, pensions is not one.
(this information is in the Annual Report, in the notes to the accounts)
The fact that the company needs an additional £400m of availability is going to send the shares into orbit. i.e. the Company has performed so badly that it needs more borrowing is some how positive. I don't see it to be honest.
@ jedclampit,
Am negative on the name but there is no way that the banks are handling the sale of the Airline Business. The Directors are still responsible for the business and would have to state to the market that they have relinquished control. We are not at that stage, (nor no where near).
Sky might be implying that the bank advising the board (away from their lending banks) are receiving the bids, but rest assured that the board are still in control.
So why no RNS - there is no need to update the market - they have advised the market they are undertaking a review of the airline segment with a view to selling it. They have started a process and it is ongoing. To get the best price it is easier if these discussions are kept confidential. (It fact the FCA/Stock Exchange should prosecute however is leaking to the media).
I don't expect an update at their H1 results next week (except for the process is under way).
Fair comment andino.
My point is if you only look at the headlines it is really worthless. But if you get access to the full report it is worth taking the time to read each part in depth. The best analysis is the one which is contrarian to your own personal view. Best to be challenged at the analysis stage than at the end of the investment.
Disagree - Berenberg recommended its clients to sell when shares were 112p in Nov 17, and recommended again last November to sell when shares were c. 55p, so I would say that was good advice.
But the operative word is "client" - i.e. someone who pays for the research. A lot of the value in the research is the in the body of the report -
Although I am negative on Thomas Cook, I want to correct the comment about the Pension Deficit.
There is a pension deficit reported in the Annual Report - but it is solely related to the German business.
The UK Pension is in surplus so won't require any funds from the Company to make it good - it already is.
The German system is different from the UK - all pension funds are unfunded, mainly because the Company isn't liable for the deficit - it falls on the government. The Company has paid its taxes (including pension levy) so has no further obligation (significant). Pension deficit is a red herring. Not a negative, in fact the fact the UK pension is in surplus is a positive for the Company.
I will leave it at this.
My point is as you state they will pay down debt with proceeds of airline sale. Mandatory under the terms of the bonds, the airline Group a restricted asset. But why did the bank sell at 59c if a sale is imminent?
They mention that they want to maintain ability to invest for the future, but also mention the ability to maintain appropriate liquidity buffer through the winter. They state they had adequate liquidity buffer through last winter. So if they just maintain at same level trading would be flat. They state they want more liquidity so is this stating performance is getting worse.
Why are they looking for new facilities - if cashflow was same as previous year they would not need more availability.
Not sure why you are gloating.
They are suppose to be selling the airline - so why do they need a new facility for H1 2020 (Oct-Mar 2020 period)? Does that mean they are not able to sell it or at least not for the price they want.
Or they can sell the airline, but the Company still needs more cash.
Bottom line the Company is stating it potentially needs additional liquidity/headroom for their Q1/Q2 period next year. Is that not scary?