Thomas Cook (TCG) has swung back into the black for the first time since 2010, suggesting the turnaround plan it put in place earlier this year is working.

Shares in the £1.5 billion cap rise 4.3% to 102.6p after it reports a forecast-beating pre-tax profit of £50 million for the year ending 30 September 2015, compared with a loss of £114 million the previous year.

THOMAS COOK GROUP - Comparison Line Chart (Rebased to first)

The travel agent has strengthened its balance sheet – reducing its net debt to its lowest level since 2007 – and it expects to pay a dividend in early 2017 in respect of FY2016 earnings.

The group has been hit by the attacks in Tunisia and the bombing of the Russian passenger jet over Egypt but it says the underlying business has traded well and the new financial year has got off to a good start.

Selling prices for the winter period are 3% higher and bookings are up by 1% year-on-year, driven by a strong performance in the UK and Northern Europe.

Thomas Cook has laid out the details of its new operating model which include improving its own-brand hotels and flights, focusing its holiday offering on a core portfolio of own-brand hotels, creating an omni-channel experience for customers and generating further efficiencies.

These measures are expected to drive revenue growth at least in line with the European leisure travel market, which it estimates will grow at 2% to 3% a year, and boost annual EBIT (earnings before interest and tax) by £100 million to £120 million by FY2018. It’s also targeting a fixed-term debt reduction of at least £300 million over the next three years.

Shore Capital has increased its recommendation from ‘hold’ to ‘buy’, saying there is the potential for Thomas Cook to deliver greater cash flow and margin improvement over the longer-term.

The shares have fallen by 23% over the past year, you can read more on our view of the business here.

Issue Date: 25 Nov 2015