News:
Disc: Invested
Nice accumulation of new flow over the last few days - one addition is around Sterling Holiday resort repaying Cumulative Convertible Debentures and extinguishing them. A shift in capital allocation where subsidiary is repaying capital to parent. If this trend is established in multiple subs (and Thomas Cook is home to many) and key shift in capital allocation decision making gets established. Markets generally reward those companies. In the last few days, dividend declared, repayment of capital from subsidiary starts adding some confidence. Can they keep this up?
Discl: Invested
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Latest my disclosure: Exited and booked profit last week
I think there still is a long way to go in terms of fundamentals as well as price.
On the OFS & other things of Thomas Cook India.
https://twitter.com/SmartSyncServ/status/1730167254052905367?s=20
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I sold Balaji Amines seeing analysis of Mr Bakshi in 2017 at 450, rest is history.
Hi!! I had purchased Thomas cook as a value buy in Oct 21 and the revival in business has played out well for the stock. The overall business has also shown improvement in margins as cost reduction taken during pandemic were sustained post that. The profitability also changed as their acquisitions started contributing to the bottom line.
There still seems to be some room for outbound revival growth, but overall the value proposition in the stock has caught up as it has started trading above it’s long term average valuations. Hence, I was trying to analyse and see if the story is structural and there are any re-rating triggers…
Also analysing if there are any decent moats in the business or supply side dominance which would help them in their journey from here on.
Having said that sharing a few questions that come to my mind, if anyone can help answer those…
Industry…
- The tourism industry is expected to grow at a rate of 10-12 % in the coming years, while digital platforms would grow faster than that. Would Thomas cook be able to grow faster than the industry growth?
Travel and travel related business… which forms majority of their revenue is a commodity (hence it’s contribution to EBIT is very low). The only moat businesses like these usually have is brand identity and distribution reach.
- Even though Thomas cook remains a strong brand, but the likes of Makemytrip have also been able to establish themselves as a mighty competitor. Travel tech is an important part of the value chain, where growth is higher than the traditional channels; So is Thomas cooks’s platform good enough to compete with these companies in the long term?! And does the shift to digital narrow their distribution moat?
- SOTC has been an established player in the outbound customised tour business. The packaged tour business current market penetration is 7.8%, is expected to reach 10% with 64.7m users. Would the growth in packaged holiday help them cement their position in the industry by creating supply side (hotels and airlines) dominance, giving them negotiation power?
- Is there a way to compare the travel business of Thomas cook and Makeytrip? As the revenue break down which they both provide is largely different.
And at company level…
- Their consolidated EBITDA has reached 8.5% in 9MFY23, which is a huge improvement from the past. But do one see it surpassing that?
At stock price level…
- The stock is available at close to 1x P/S and 9x P/CFO, is there any re-rating possibility here?
- The coverage on the stock pretty low, specially amongst FII due to low trading volumes. So even if the business growth continues how is the stock price growth supported in such situations? How do one look at the possibility of FII holding increasing in stocks like these.
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Systematix has coverage on the stock…
Systematix Group TC@IN Thomas Cook India - IC - 01-02-2024 - Systematix.pdf (1.5 MB)