Thanks to a three-pronged attack from Brexit-related uncertainty, terrorist attacks and air traffic control strikes, todays final results from 1.1bn cap travel giant, Thomas Cook (LSE: TCG) were never likelyto be pleasant. After an awful 12 months, should the companys loyal investors stick it out or get to the departure gate as soon as possible?
Tough year
Lets get this over with. In the 12 months to the end of September, revenue at Thomas Cook dipped from 7,834m the year before to 7,812m. On a like-for-like basis, however, this represents a drop of 371m. Underlying profit from operations came in at 308m, down from the 310m in the previous year but again, on a like-for-like basis, this still amounts toa sizeable 41m drop once the currency boost from the decline in sterling is stripped out. Profits after tax slumped from19 to 9m and underlying earnings per share declined from 8.9p to 8.5p.
Any positives? Well, aside from the beneficial impact of sterlings slide, Thomas Cooks efforts to shift away from destinations such as Turkey and North Africa have been fairly successful and helped soften the blow somewhat. Levels of net debt, despite almost identical to last years figureat129m, nevertheless represent an improvement of 56m on a like-for-like basis. Although income investors will hardly be salivating at the prospect, the companys decision to resume paying dividends after a gap of five years also suggests a degree of confidence from Thomas Cooks board. Indeed, while remarkingthat it would be taking a cautious approach to the year ahead,CEO Peter Fankhauser also reflected that the companyremained optimisticof achieving a full-year operating result in line with market expectations.Perhaps thanks to these reassuringcomments, shares in Thomas Cookjumped by over 7% in early trading suggesting that the market feared worse news than it received.
Contrarian opportunity?
Can the good times return to Thomas Cook? Quite possibly. Bear in mind that this was the same company whose share price recovered from 14p in 2012to 185p in March 2014, albeit under the steerageof former CEOHarriet Green.As to whether its worth waiting for this recovery, Im not so sure. While shares in the travel operator are undeniably cheapon a forecast price-to-earnings ratio (P/E) of justunder 7 for 2017, I think there are far more compelling opportunities elsewhere, even in the travel industry.
One such alternativeis pureplay online operatorOn the Beach (LSE: OTB). In sharp contrast to Thomas Cook, a recent trading update from the 301m small-cap was undeniably positive. Despite operating in the same challenging market, On the Beach has been able to grow revenue by 18% to 36m in 2016. Thanks to more and more holiday-makers going online, the company also managed to increase its market share with daily unique visitors rising by 13% over the last year to 61m. While still a lot smaller than Thomas Cook, On the Beach is also expanding into international markets such as Sweden, suggesting its not willing to rest on its laurels.
On a forecast price-to-earnings ratio of just over 13for 2017, shares in the Stockport-based businessare certainly more expensive, but given its asset-light business model, are a far less riskybet in my opinion.
On the Beach isn’t the only great growthshare out there, of course. If you’re willing to take on more risk for the possibility of higher returns, you’ll want to read a special report from the experts at the Motley Fool. They’ve tracked down what they believe to bea unique, up-and-coming British brand that looks set to go global.
And how much will this report cost you, our Foolish reader? Absolutely nothing at all.
Click here for FREE report without obligation.
Paul Summers owns shares in On The Beach. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
