Do Thomas Cook Group plc’s Results Indicate It Will Outperform easyJet plc, TUI AG And International Consolidated Airlines Grp SA?

Will Thomas Cook Group plc (LON:TCG) turn around its performance to rise above easyJet plc (LON:EZJ), TUI AG (LON:TUI) and International Consolidated Airlines Grp SA (LON:IAG)?

Thomas Cook Group plc
Thomas Cook Group plc

Thomas Cook Group plc (LON:TCG) (LSE:TCG.L) has released full year results for the year to 30 September. Its performance has largely been consistent with that delivered in Q3, where the difficulties experienced in Turkey have been offset by a shift to alternative destinations and currency translation.

Thomas Cook’s gross margin has increased by 80 bps to 23.4%, which reflects its focus on an improved and wider holiday offering for customers. This has allowed Thomas Cook to report a record underlying EBIT margin in the UK and Northern Europe, while also increasing its Group Net Promoter score by 6 points in summer 2016.

Additionally, Thomas Cook has 14 new hotels in its pipeline as it seeks to build on the success of its own-brand hotels. Alongside a streamlining of its portfolio of selected hotels, this should provide greater choice for customers.

Thomas Cook’s underlying operating profit of £308 million is down £2 million on last year but has prompted the company to reinstate dividends. It will pay 0.5p per share. Its outlook remains uncertain, due in part to challenges in Turkey, but it reports that it has experienced an encouraging start to bookings for summer 2017 in its key markets.

In 2016, Thomas Cook’s share price has fallen by 37%. This is a worse performance than sector peers easyJet plc (LON:EZJ), TUI AG (LON:TUI) and International Consolidated Airlines Grp SA (LON:IAG). For instance, easyJet is down 35%, TUI has declined by 11% and IAG has lost 25% in value since the start of the year.

In my view, Thomas Cook has long term investment appeal. Its strategy to focus more on long haul and Western Mediterranean holidays is logical given the difficulties experienced in Turkey. Although it may take time for the company to adapt to the challenges it faces, I believe that it will perform well on a relative basis over the medium to long term.

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