Samir
yes the conventional thinking is correct. But TC is not a value stock at this price. It is extremely costly share at this price evaluating from usual financial parameters. Yes in view it is difficult to evaluate the intrinsic value in view of many acquisitions and corporate actions company is doing. But it still seems to be costly share at CMP.
Disc: Not invested, tracking
I think out of the three businesses, HR staffing (quess) is doing well and growing profitably, travel and forex (their traditional business) is also doing well. But sterling resort seems to be a high capital business and not doing well on profitability, capital efficiency and growth parameters. In my opinion ( limited understanding and limited efforts to analyse) sterling is a drag.
Disc: Invested ( Small position)
Appreciate comments. Agree with comments which reflect the near term situation.
The key to this co is there are three verticals (or companies/businesses) run by Intelligent Fanatics (word credit to Prof. Bakshi). Float generated in 2 of the 3 businesses i.e. forex cards in Thomas cook and timeshare memberships in Sterling generate a negative working capital. The inherent strengths should not be ignored for qoq hiccups.
Samir
At the current market price of Thomas Cook its market cap is 7,150 crs. It owns 60% of Quess Corp, whose current market cap is 7,600 crs. At 60%, Thomas Cookâs holding would be valued at 4,560 crs. Around the time of acquisition of Sterling Holiday in Feb 14, it was valued at 820 crs. After merger with TCIL, independent valuation is not available but one can safely say that it should be worth around 1000 crs. today. Which brings the value of non-travel business in TCILâs market cap to 5,560 crs. This means that the core business of TCIL is valued at about 1,600 crs. Thomas Cook itself was acquired by Fairfax in May 12 at a valuation of 1061 crs and since then TCIL has also acquired the travel business of Kuoni for 535 crs. Basically in the current valuation both the organic and inorganic growth of core business of TCIL seem to be discounted heavily.
Itâs always the case with the companies that act like holding companies. The 60% stake is valued at much lower levels because of control,liquidity etc.
Read more about holding company discount here
Its a good argument but is based on an assumption that Market cap of Quess corp is the actual value of Quess crop.
Irrespective of the growth ( You can read challenges in Quess in separate thread ).
For me a biz whose WC is getting stretched and is thus not generating cash these valuations are expensive. So we need to think what is a conservative value to be assigned to Quess.
then i think the safety wonât appear that high
Although the Q1 result of Thomas cook was lacklustreâŚtechnically the stock is on the verge of a volatility breakoutâŚthe breakout may happen in the next 2-3 daysâŚits a good time and price to add Thomas cook to ones portfolio with a closing stoploss of 195âŚ
Disclosure: I am not invested in Thomas cook as of nowâŚbut watching the stock quite keenly.
Thomas cook consolidated result
Group registered strong consolidated financial results with an increase in Income from Operations of 11% (Rs.24.8 Bn. to Rs. 27.6 Bn.); Earnings Before Interest & Tax growth of 11% (Rs 1381.1 Mn. to Rs 1535.3 Mn.); Profit Before Tax growth of 10% (Rs 1075.8 Mn. to Rs. 1182.7 Mn.), against the corresponding Quarter 2016.
http://www.bseindia.com/xml-data/corpfiling/AttachLive/79409c03-c3de-41e7-8635-4e77cd59f103.pdf
thanks
ashit
Prem Watsa isnât going to use thomas cook as his holding company. He is investing directly through fairfax india holding company. So we canât treat thomas cook as berkshire hathway. If we bet on indian tourism sector, thomas cook is a good buy considering itâs discount over its companies it hold.
Attached please review my investment thesis and rationale on TCIL.
Any comment/feedback/questions/critique is very welcome. Thomas Cook India_Investment Rationale_09102017.pdf (1.4 MB)
Very interesting analysis Amit. Wanted to add that the company is run by three intelligent fanatics: you have ofcourse stated the two but the key one (which might surprise all of us) is Ramesh Ramanathan of SterlingâŚ
Disc: Invested at lower levels
@rupaniamit
An additional point regards Debt:
Quess corp debt should be Rs. 175 crs by the end of Q12017/18. Having done a QIP, they should be looking to pre-pay that Debt(?) so their Debt should get adjusted from the consolidated no of Rs.900 crs. Does not move the needle much but is this the path to deleveraging?
Thank you for your comments @Samir701
Re: Ramesh Ramanathan - I have read from Watsaâs annual letter that Ramesh has been pioneer of TimeShare concept in India. But now as you have pointed out - will look out for information for him. If you have any interesting articles about him, please share.
Re: Consolidated Debt - They have zero net debt on consolidated level. I see ~1200 crores in Cash & Equivalents in FY17 balancesheet. Since we are partnering with best capital allocators in the world, I am not too much worried about the current debt. In fact, I feel below lines from Warren apply to TCILâs current debt:
**One further aspect of our debt policy deserves comment: Unlike many in the business world, we prefer to finance in anticipation of need rather than in reaction to it. A business obtains the best financial results possible by managing both sides of its balance sheet well. This means obtaining the highest-possible return on assets and the lowest-possible cost on liabilities. It would be convenient if opportunities for intelligent action on both fronts coincided. However, reason tells us that just the opposite is likely to be the case: Tight money conditions, which translate into high costs for liabilities, will create the best opportunities for acquisitions, and cheap money will cause assets to be bid to the sky. Our conclusion: Action on the liability side should sometimes be taken independent of any action on the asset side.
**Alas, what is âtightâ and âcheapâ money is far from clear at any particular time. We have no ability to forecast interest rates and - maintaining our usual open-minded spirit - believe that no one else can. Therefore, we simply borrow when conditions seem non-oppressive and hope that we will later find intelligent expansion or acquisition opportunities, which - as we have said - are most likely to pop up when conditions in the debt market are clearly oppressive. Our basic principle is that if you want to shoot rare, fast-moving elephants, you should always carry a loaded gun. Our fund-first, buy-or-expand-later policy almost always penalizes near-term earnings. For example, we are now earning about 6 1/2% on the $250 million we recently raised at 10%, a disparity that is currently costing us about $160,000 per week. This negative spread is unimportant to us and will not cause us to stretch for either acquisitions or higher-yielding short-term instruments. If we find the right sort of business elephant within the next five years or so, the wait will have been worthwhile.
Thomas cook will buy Tata capital travel services businesses
Company says The acquisition will result in a âsignificant increase in scale and network reach, volume/buying advantagesâ and better customer service
Thanks
Ashit
I am reminded of a deal done by Tata Industries (if my recollection is right it was Kishore Chaukar at the helm then) of selling Tata Hi Tech Drilling to Aban Lloyd. At around Rs. 92 per share (even though Aban was not a preferred buyer) - after that transaction Aban really changed that business ofcoursed aided by tailwinds in the business though - shareholders of Aban got a huge upside because they could unlock a lot of value from the business.
If Thomas Cook can do likewise - given it is a âhome runâ for them i.e. forex and corporate travel - and integrate that with their app/etc they could mine the Tata Group travel as well.
With digitization of Forex and Corporate Travel - it should give a firm hold in developing a deeper platform for the same. Let us see how the story pans out - my sense this business should generate additional âfloatâ and should not bring in any new debt on the B/S. Interesting to understand if my understand of the same is correct.
Disc: Invested and averaging up
Interesting piece of data given by the company:
http://www.bseindia.com/xml-data/corpfiling/AttachLive/ad0fff37-94e7-4f99-bc13-ee8a24e7df78.pdf
This companyâs has grown humongously over last decade with a CAGR of about 45%, but the bottomline kept shinking and moved to bigger and bigger losses. Itâs OPM has shrunk from 30%+ to 3%.
If the company can focus on stop growing topline and focus on improving OPM it can still give great returns from here.
I am reading this thread in 2017.
Professor Bakshiâs note with the filename: Lecture_19_Thomas_Cook.pdf is not accessible anymore.
Please share if anybody has the file stored locally.
Here is a Dropbox download link please. https://www.dropbox.com/s/016vhbumphacrce/Lecture_19_Thomas_Cook.pdf?dl=0
The file is too big ~ 24MB to be uploaded here.
Discl. Not invested
a little over 5% Quess stake sale will net about 600 cr, will be used to retire debt. Will this be the trigger for actual profitability to start showing?
