Should you buy [TCG] Thomas Cook Group plc?

TCG

[TCG] Thomas Cook Group plc are in real trouble at the moment. With the share price falling all the way down to 16p a share, are investors wise to buy as much as they can of this cheap stock? Or stay well away? Does recent news of a potential Chinese takeover make a difference?

Today, I wanted to share with you the results of the recent analysis we’ve run at The CLEAN Trader for our exclusive INNER CIRCLE members.

Looking at the financial data as far back as 2008 the company have catastrophically failed to pass the grade.

In 2008 [TCG] posted a turnover of £8.1 billion. Yet only kept 0.6% (45 million) after costs and expenses. Ouch. That’s incredibly low. 

But 2008 was a bad year for many, so how did they fair the following 10 years?

Worse, unfortunately.

In 2009 they posted a £9.2 billion turnover, but kept only 0.2% (22 million) in profits. In 2010, keeping only £1 million profit from a revenue of £8.8 billion.

Despite posting £9.8 billion in revenue in 2011, they made a loss of an astonishing £521 million.

Why?

A combination of the cost of doing business being far too high spending between 85-100% of all profit on general running costs from 2008-2011. As well as hundreds of millions being spent on the interest payments made on debt owed.

[TCG] Thomas Cook Group plc went on to post net losses in 2012, 2013 and 2014.

The short term assets of the company have over the past 10 years been at half of the short term company liabilities. That’s the wrong way around, we want to see more assets than liabilities.

Add to this the fact that the companies long term debt has grown from £416 million in 2008, to over £1 billion by 2018. Not such a big deal if the net earnings were high enough to pay this debt off. Terrible however for a company posting net losses this whole time.

If you personally had no money left in the bank after each month, and watched your overdraft grow as your costs outweighed your income, would you take on more borrowing? I mean, its a short term solution, sure. But it can only lead to failure as theres no profits to pay that debt off.

Isn’t it amazing that huge companies will run themselves in this way, rather than cut costs and streamline the business?

Of course, we’ve known since [TCG]’s annual report posted on 30/09/2010 that it would have been safer to short this company than buy.

2008 – 2010 would have seen 3 consecutive years of increasingly poor results. Which only got worse in 2011 and 2012.

The company saw a very slight improvement between 2015 and 2017 when it finally got back to making some profit. However, it continued to borrow vast debt to compete and by 2018’s report the company are back to posting losses of £163 million with over £1.2 billion in debt, £184 billion to be paid within the next year.

In 2010 the share price sat at £1.65. Today it rests at £0.16p.

Wrap Up

Yes, you could buy at a bargain, and take a risk here, and maybe make some quick money. Personally I don’t think it’s worth it. [TCG] have not shown any sign of sensible financial management in the last 10 years. They’ve made some poor decisions to borrow more rather than focus on reduction of expenses and led themselves to the point where they cannot survive. A take over will probably bring in new faces and the company may even make a comeback under new owners, if that’s what the future holds for [TCG]. But personally I feel there are better opportunities out in the markets today than trying to make a fast buck off a high risk like this. 

Taking a huge risk with your money rarely makes sense. Personally I am in the camp of thinking that one would be better of here looking at opportunities where returns are more likely. It’s for this reason I won’t be looking for any long signals on [TCG] or jumping in at the 0.16p price.

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About Chris Chillingworth

Self confessed lover of racing, american football and whiskey. Trader and Investor since 2011. Chris has now coached over +1500 traders using his mechanical systematic trading strategies and now also runs a members only watchlist of FTSE stocks.

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