Shares in holidays firm Thomas Cook (TCG) remain in freefall. In mid-morning trade on Tuesday the stock is off another 15%, meaning that the share price has lost roughly 60% of its value since the profit warning on 27 November.

At today’s 20.2p share price, May’s 140p-odd highs seem like a very long time (and altitude) away.

TAKING A HOLIDAY FROM HOLIDAYS

Shares has previously explained why consumer demand for sunshine package holidays has been nipped in the bud. And how the firm’s balance sheet is creaking under the strain of soaring debts.

But worryingly, the worst may not be over.

Some analysts reckon the stock could plunge as low as 12p, implying another 40% to fall from here. That’s because of the increasingly likelihood that Thomas Cook will have to come back to investors with its cap in hand for more cash.

‘The risk that the company will need fresh equity is, in our view, back on the agenda,’ state analysts at investment bank Berenberg.

BALANCE SHEET PRESSURE MOUNTING

The bleak assessment is partly down to weak free cash flow, which Berenberg argues is unlikely to improve any time soon.

This is particularly bad timing. If this were March the company might reasonably expect a sudden influx of summer holiday deposits to start flooding in. But it's December, right at the start of the firm’s deadest part of the year.

According to the investment bank, the yield on Thomas Cook’s bonds has shot beyond 10%.

The key question now is the company’s banking covenants, and how close to the wind Thomas Cook’s sailing comes to breaking them.

‘While there is no short-term threat as long as Thomas Cook remains in compliance with covenants, the need to address the 2022 maturities [bonds that end in 2022] is probably only 18 to 24 months away,’ says Berenberg.

The pressure is clearly on, and for the time being, investors are preparing for the worst and pricing in the possibility of a heavily discounted cash call some time soon.

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Issue Date: 04 Dec 2018