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Thomas Cook dividend blow knocks value managers

Thomas Cook dividend blow knocks value managers

Shares in Thomas Cook (TCG) have lost nearly a quarter of their value, as the travel group suspended its dividend and cut profit forecasts for the second time in two months, blaming the summer heatwave.

The shares slumped 21.9% to 37.9p, tumbling to the bottom of the FTSE 250, as the group predicted 2018 earnings of £250 million, well down on the £280 million it had previously forecast.

The group suspended its dividend payment for 2018, having paid out 0.6p to shareholders last year.

'2018 was a disappointing year for Thomas Cook, despite achieving some important milestones in our strategy for transforming the business,' said chief executive Peter Fankhauser.

'After a good start to the year, we experienced a larger-than-anticipated decline in gross margin following the prolonged period of hot weather in our key summer trading period.'

After hitting 136p in May, shares in Thomas Cook have been a steady slide since, having delivered an earlier profit warning in September.

Thomas Cook has been backed by a number of value-focused UK fund managers, including Steve Davies, manager of the Jupiter UK Growth (JUKG) investment trust and fund of the same name.

Annual reports for both the trust and fund show a 3.8% and 3.2% holding respectively at the end of June.

John Innes, manager of the RWC UK Focus fund, has also backed the stock, with a 2.6% holding at the end of June.

Both managers' funds sit towards the bottom of the Investment Association's UK All Companies sector over three years. Jupiter UK Growth is down 7.8% over the period while RWC UK Focus is up just 9.4%.

Andrew Hunt, manager of the best-performing fund in the sector over three years, Standard Life Investments UK Equity Recovery, up 59.2%, meanwhile held 2.8% of his portfolio in Thomas Cook at the end of August.

Citywire A-rated Andy Brough, manager of the Schroder UK Mid 250 fund and Schroder UK Mid Cap (SCP) investment trust, meanwhile held 2.3% and 1.2% of his respective portfolios in the stock at the end of July.

Michael Hewson, chief market analyst at CMC Markets UK, said 2019 had been an 'awful year' for Thomas Cook.

'Before this morning’s announcement, the share price had already fallen 60% year to date,' he said.

'The decision to cut the dividend can’t have been taken lightly however the lack of dividend is likely to be the least of shareholders problems given how badly the shares have performed this year.'

Russ Mould, investment director at AJ Bell, said the biggest concern was Thomas Cook's debt pile, which had ballooned to £389 million, versus the £267 million investors had estimated.

'Analysts had forecast for the business to move into a net cash position in 2020 and that now seems unlikely unless there is a radical improvement in trading,' he said.

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Andrew Hunt
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139/195 in Equity - UK (All Companies) (Performance over 1 year) Average Total Return: -7.69%
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