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Thoughts on Thomas Cook: stay away. Short Flybe instead

By Lucian Miers | Monday 10 December 2018


Disclosure: The author has a short position in one or more of the shares mentioned. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.


Several people have asked me about Thomas Cook (TCG) recently where there is certainly an element of déjà vu from seven years ago. I was short then on the basis that the company was insolvent and was waiting patiently for the shares to go from 10p to zero.

That though was a good time to be insolvent. The euro crisis was in full panic mode and David Cameron was in no mood to see 15,000 jobs lost. He referred to Thomas Cook in parliament as “an important and iconic brand” that should not be allowed to fail and the chastened lenders, of which RBS and Lloyds were prominent, listened and rolled over their loans extending further credit as well.

The worst time to be a bear is when you are short a bust company that doesn’t go bust. Luckily, I closed for a modest loss immediately after Cameron spoke. Those who went long then (sadly not me), saw the shares rise 18 fold in the next 2 years. It was a fantastic trade.

The situation today is similar in some respects with shocking results, dividends cancelled and fears about debt levels. But net debt of £400 million is half what it was back then and it could probably sell the airline if necessary. The company also still has a market cap of £460 million despite the falls, whereas in November 2011 at the bottom it was £80 million. So, my view on Thomas Cook is to leave it alone. It is in nothing like the state it was when it was rescued by politics but on the other hand its upside potential is nothing like it was when last at these prices. If Guo Guanchang, Fosun’s boss who has 12% at prices much higher than here, were to acquire Thomas Cook he could probably do so at much less than 100p.

Since the above is essentially “do nothing”. I had better throw in a “do something”. That is to short Flybe (FLYB), even at 15p which values it at £34 million. The price has almost doubled since it announced that Virgin Atlantic was vaguely looking at it but given the mess that it is in with huge liabilities and commitments I can’t see any acquirer paying more than a token amount for the equity, if anything at all.

This article first appeared on the N50 website which Tom Winnifrith runs with Steve Moore & Lucian Miers. To access the website ahead of the next share tip from Tom & Steve and a new shorting piece from Lucian shortly click HERE


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