US Edition 
Questor share tip: Thomas Cook shares oversold
Market fears of lost business from Egyptian unrest at the tour group look overdone, Questor says buy
Thomas Cook
117.6p+2.4p
Questor says BUY
THOMAS Cook’s [LON:TCG] shares have had a miserable 2014, falling by almost 30pc as holiday makers shun overseas destinations such as Egypt and investors exit growth shares as geopolitical risk rises.
Questor thinks the stock is now looking oversold, and is holding firm with the turnaround at the travel group.
The 173-year-old tour operator has been hit hard by unrest in Egypt, in particular. The company said at the end of July that disorder in the country reduced revenue in the three months ended June 30 by £54m, resulting in a £6m hit to profits.
This follows a first half in which 250,000 fewer customers travelled to Egypt, costing Thomas Cook £131m in revenues and £14m in profits in the six months ended March.
The turnaround under chief executive Harriet Green, who joined in July 2012, has taken a serious knock as a result. After last month’s third-quarter update, broker Jefferies downgraded forecasts for full-year adjusted pre-tax profits from £219m to £207m, giving 10.9p in earnings per share.
However, the shares jumped by more than 2pc yesterday as investors went back into “risk-on” mode, as it appeared Russia had stepped back from an invasion of Ukraine and a fresh ceasefire held in Gaza.
Questor thinks there was just enough good news in July’s update to keep faith with the shares.
Profits in the third quarter increased to £33m, £18m higher than the same period last year. The profit margins at the group are also improving - up to 3.4pc at the end of June from 2.7pc at the same stage last year.
The company said it achieved a further £51m in cost savings during the third quarter, bringing the total this year to £328m. That means Thomas Cook only needs to find savings of £32m in the fourth quarter to hit its full-year target of £360m.
The risks to investors in this recovery story have certainly increased this year. The company said net debt had risen to £507m, from £452m at the same stage last year, and cashflow had fallen sharply.
However, Thomas Cook’s shares now simply look too cheap, trading on 11.4 times forecast earnings and falling to seven times next year.
The sell-off this year looks overdone, and Questor retains its buy recommendation.