Thomas Cook (lon:tcg)
Thomas Cook - Is The Recapitalisation An Opportunity?


ItemCurrent PeriodPrevious Period
Adjusted Earnings
Adjusted EBITDA
Statutory Profit(£1474m)(£303m)
Adjusted Profit
Total Debt
Net Debt£1247m£886m
Title: Thomas Cook - Is The Recapitalisation An Opportunity?
Company: TCG - Thomas Cook
Share Price Then: 5.38p
Author: Ian Smith
Date: Sun 14 Jul 2019
Comments: On Friday Thomas Cook announced that they are in advanced discussions over a £750 million cash injection and a debt for equity swap

Existing shareholders will be significantly diluted as part of the recapitalisation. However, shareholders may be given the opportunity to participate in the recapitalisation by way of investment alongside Fosun and converting financial creditors on terms to be agreed.

Clearly for any long term holders this is a disaster, over the last 5 years the share price has mostly traded in the 60p-120p to range, whilst on Friday it closed at 5.3p giving a market cap of £83m.

What I am trying to work out is the dilution level and assuming that a successful Thomas Cook is worth 100p per share pre the refinancing.

The ….shareholders may be given the opportunity to participate in the recapitalisation…

....The recapitalisation proposal will require a reorganisation of the ownership of the Tour Operator and Airline businesses which is expected to result in Fosun owning a significant controlling stake in the Group Tour Operator and a significant minority interest in the Group Airline....

suggests that the plan isn’t to do something like 500 new shares for each existing one which would wipe out existing share holders and give them no reason to invest but something “just about palatable”.

So does “just about palatable” mean the current share holders will end up with 10% of the company, or 5% or 1% after the recapitalisation?

The retail market has been scared, and on Monday the price may continue to drop, possibly down to 1p-3p.

So am I right that the plan will leave something for existing share holders? If I am I see an opportunity to get it wrong and lose a lot, or to think this through and possibly do well.

If the plan is to leave just 1% for existing share holders then the fair share price may be 1p, but if the price really does drop that low and the plan is to leave 5% then upon announcement of the formal terms you could be looking at a 5 times return in only a few months.

Of course if the plan is to leave just 0.5% for existing share holders then you are trapped in with 50% loss.

Clearly this is not a safe play for anyone as there is this single massive unknown, but if you do have a High Risk section in your portfolio then this could be an interesting play.

Note that the numbers shown are H1 not annual figures.
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Previous Commentaries On Thomas Cook
Date Share Price Author Commentary
Tue 21 May 201910.4pIan Smith

Thomas Cook – All Over But We Don’t Know It Or A Great Opportunity?

After the last few days of share price drops I was surprised to see only four companies with large enough to show short positions on Thomas Cook, with about 5.5% of the shares shorted.

This puts them as the 24th most shorted share, this may be because there is nobody willing to loan the shares or it may be than those who really understand the situation see that it is troublesome but the share price may be close to as low as it is going for a while.

There is no denying the 6 months ended 31 Mar 2019 were worse than the 2018 figures and the trend is towards worse results.

Looking at net debt can be quite confusing in a business with irregular income and large amounts of cash at hand at certain points of the year but it is clear that at over a £1 billion debt is worrying high.

Has the Goodwill Impairment of £1.1billion been over reacted to and seen as a cash loss this year and is part of the spooking?

One of the reasons that the share price had tumbled to 20p or so is that many are expecting a debt for equity swap or a share issue, the extra £300 million of debt makes this more likely but does it justify a 10p price or lower?

Or are there some people in the know who realise that a deal is just down the line that will wipe out the current share holders?