Thomas Cook touts turnaround

Thomas Cook 's (TCG) view on its horrid full-year numbers is that they reflect debt and trading issues that the new management team now has in hand rather than the turnaround prospects that have begun to emerge. The troubled tour operator provides a number of reasons for optimism, despite full-year underlying pre-tax profits of £12.7m falling short of expectations and reporting £498m of exceptional costs.

A 12 per cent reduction in net debt to £788m, which follows a slew of asset sales and tighter cash management, was significantly better had been hoped for. The group also traded in line with the previous year during its fourth quarter, which represents a big improvement on the three preceding quarters. What's more, winter bookings are encouraging. There was good news on the cost front as well, with management identifying a further £100m of savings and £50m of cash-flow improvements on top of £140m of expected benefits from the ongoing UK turnaround. There may well be more to come when management fleshes out turnaround plans in the spring.

Broker Investec Securities points out that the current operating margin of 1.6 per cent is substantially below a 3.8 per cent five-year average. But views on the group's ability to realise that implied potential differ greatly, with Investec forecasting current year EPS of 6p, Numis penciling in 3.3p and Panmure Gordon expecting just 0.96p (from a loss per share of 3.7p in 2012).

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