Some 14 months after its float, Thomson Travel Group has proved to be a poor investment. Travel Weekly editor Jeremy Skidmore gets the City view
THE 500,000 private investors who forked out £500 each for Thomson shares valued at 170p when the company was floated in May 1998 could be forgiven for feeling aggrieved.
As Travel Weekly went to press Thomson's share price stood at 136.5p, making their investments worth just £401 each.
Leisure shares have had a rough ride over the past year, but Thomson has fared worse than its rivals. It's not as though the company has performed badly - pre-tax profits were up 10% to £122.9m last year - so why has it fallen out with the City?
Demand for Thomson shares has fallen because the City has compared it unfavourably with other operators. "Investors look at the leisure industry and they quickly make a choice between Thomson, Airtours and First Choice," said one analyst. "Broadly speaking they prefer the international range of Airtours' portfolio and the potential at First Choice."
Airtours' team of chairman David Crossland, managing director Harry Coe and finance director Tim Byrne are the darlings of the City, regarded as northern street fighters with sharp brains and a clear strategy on global expansion. Over at First Choice, group managing director Peter Long and chairman Ian Clubb are respected for the way they have turned around an ailing company.
Meanwhile, Thomson's front man, chief executive Paul Brett, is new to the the City and that is one of his biggest problems. Analysts who have grown up with Crossland have yet to give Brett a fair crack of the whip.
On the one hand, there is a man with a fantastic track record in the City, a deal maker who loves to hustle and who has built up relationships in important circles. On the other is a new guy who is more reserved and tells a different story. Who are the analysts going to believe?
But you don't get to be in Brett's position without knowing a thing or two about tour operating and he can yet win over the doubters if he keeps delivering on profits. In the long term, that's all that matters.
In the meantime, distrust of the new boys has led to accusations of Thomson lacking the innovation of its rivals or a clear strategy in the global market.
In the City, perception can be more important than fact. And to analysts, the current perception is clear: Airtours and First Choice know where they are going, Thomson doesn't.
Thomson's controversial Preferred Agent Scheme and superior attitude have also made the company unpopular in the trade and those vibes have hit the City.
"You have to remember that analysts and fund managers talk to people in the trade," said one source. "And everyone you meet talks down Thomson because they don't like the arrogant attitude that they have had over the past few years. People in the trade talk up Crossland and Airtours. When you've got a choice between buying or recommending one company over another, it is bound to have an impact."
Brett did not help himself with his annual general meeting statement of April 29, when he pledged to increase volume in response to Airtours' hostile bid for First Choice. The City saw this as a prelude to a price war and a profit slump.
"Thomson had promised common sense at its float and then changed its mind. The City will take a long time to trust them again," said one analyst.
Meanwhile, Airtours' attempts to takeover First Choice and the rapid growth of Thomas Cook under owner Preussag have led to talk of Thomson being shunted into the number-three spot, casting a further shadow over its share price.
Like any chief executive, Brett has had to stomach much of the criticism for the problems. Some have even called for his head but most have urged changes, including recruiting onto its board people who know the business and how to sell on the high street.
"Airtours has British Midland chairman Sir Michael Bishop and KwikFit founder Tom Farmer," said one source. "Thomson needs people of that calibre."
The City believes Thomson needs to focus on profits in the UK and expansion globally and win friends.
"They've got to be a bit humble and start making people love Thomson again," said a source.
"It's a strong brand and the holidays are liked by customers, but it is not well-liked in the important circles."
Analysts' tips for Thomson
Make board changes and introduce fresh blood.
Talk about profits in the UK, not market share.
Communicate a clear global strategy.
Eat some humble pie and make friends.
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