The unveiling of a new growth strategy and ambitious cost savings targets sent shares in tour operator Thomas Cook (TCG) 18% higher to 102.5p today. The £775 million cap also cheered with an upbeat outlook statement, saying 'summer trading is progressing well with improved margins.'


Thomas Cook, which will return to the FTSE 250 on Monday, is looking to turn around its fortunes through a focus on the provision of 'personalised holiday experiences through a high-tech, high-touch approach'. The travel company announced an additional £50 million of identified cost savings today, taking the 'total profit improvement actions identified already to £350 million' before the end of FY 2015.


Investors breathed a sigh of relief as the update contained no update on a potential equity issue or refinancing. As Investec Securities' James Hollins points out in his note today, 'there appears to be an implication that the identified cost and strategy focus could negate the requirement for a rights issue.'


TCG - Comparison Line Chart (Rebased to first)


The 172-year old group's travails over the past couple of years have been well-documented. Falling sales have prompted the need for Thomas Cook to renegotiate credit facilities as well as sell off aircraft and retail outlets.


Only last week (6 Mar), a consultation process was initiated that could see Thomas Cook's UK workforce reduced by 2,500 full-time roles, mostly in back-office functions and its retail network. Thomas Cook, which currently employs 15,500 workers across the UK and Ireland, is reducing its exposure to the embattled High Street at a time when the internet now dominating the mainstream travel market.


Chief executive officer (CEO) Harriet Green's strategic update is nothing if not ambitious. Cost saving targets of £350 million aside, the group plans to generate £500 million in new product revenue as well as increasing web penetration by at least 50%.


Analyst reaction to Thomas Cook's strategy update have been mixed. Panmure Gordon reiterated its 'sell' recommendation and 13p price target. The broker recently (08 March) issued the cautionary comment that 'unfortunately travel companies have a poor track record of cost savings being delivered to the bottom line and hence we think it is only right to be conservative when assessing how much of these should be included in profit forecasts.' Hollins at Investec on the other hand is more sanguine, sticking with his 'buy' recommendation and 120p price target.

Issue Date: 13 Mar 2013