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Thomas Cook shares plunged up to 15% this morning, to their lowest since end-July, despite a healthy 15% jump in FY revenues. This is due to underlying profits unfortunately growing at a slower pace (Gross margin and underlying EBIT up just 9%), explained by a Spanish price war (major contributor to airline Monarch’s demise) resulting in unwelcome and evidently highly concerning margin contraction (Gross margin -130bp, underlying EBIT margin -20bp))
Coupled with commentary about a still challenging/competitive UK market this has offset the positive message from management about Winter trading in-line with expectations, overshadowing a significant drop in net debt, bright spots in Europe and renewed interest in Turkey and Egypt.
From an opening calls of +1% to +3%, the share price plunge is the subject of much debate in the City. Could it also be due to chunky £200 Black Friday discounts which may well boost Summer 2018 bookings but will do little to bolster margins? Or perhaps brokers just need time to get their heads around the new reporting structure? The share are already off their worst levels.
Mike van Dulken, Head of Research, 22 Nov 2017
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