Today’s Thomas Cook management statement and news of the departure of group chief executive Manny Fontenla-Novoa contains a number of surprises, not all of them negative.
Personally I'm surprised that Manny has gone so soon if only because many institutional investors would have wanted him to clear up the mess first.
But this development must be seen as a defensive move by the board to shore up their position against any potential private equity bid.
In effect they're taunting the bidders by saying that "we'll clean up this mess and not let you create all the value through a bid".
The underlying numbers were a positive surprise in that there didn't seem anything untoward. Trading is subdued, as we know in the UK, but Germany still seems to be powering ahead. For me, though, the two key statements centred on cash flow and debts.
Cash flow seems to be picking up aggressively which might help explain why the lenders are happy to keep extending that massive debt line. Crucially, the interim statement confirmed that the group was trading within its debt covenants.
I'd also expect an announcement fairly soon that the dividend will be axed temporarily which will further boost Thomas Cook's financial position.
So not as bad as it could have been and the shares have ticked up by about 5% today, but there's a cloud on the horizon. According to research firm Data Explorers, short interest in Thomas Cook has shot up in the last few days.
This isn't good news as it means that the hedge funds have decided that Thomas Cook's share price has much further to fall and they're betting on a nasty climax.
I'd be careful of that bet if only because it’s obvious that Thomas Cook is now in play and those hedgies could be squeezed instantly if rumours of a bid did materialise.
But this heavy level of short interest will probably drag the share price back down over the next few weeks, pushing past the 60p barrier, and possibly even hitting 50p if the bears really get their teeth in.
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