Head-to-Head: TUI Travel vs Thomas Cook

Thursday, Oct 09 2014 by

TUI Travel (LON:TT.) and Thomas Cook (LON:TCG) have both been popular and profitable buys for investors since 2012, but the share prices of both firms have come off the boil this year: TUI is down by 12%, and Thomas Cook down by 35%, since the start of the year.

Both firms now look cheap quite cheap, with forecast P/E ratios of 7.5 (Thomas Cook) and 11.3 (TUI), but there are some big differences between the two firms -- and it's not immediately obvious which is the best buy in today's market.

To get a clearer picture, I've used the Stockopedia StockRanks to compare both firms and suggest a best buy:

TUI Travel:Thomas Cook:

TUI comes a clear first in every category, with an especially strong Value Rank of 94 and an impressive overall StockRank of 92, suggesting that TUI is a good quality business that's reasonably priced.

Thomas Cook is handicapped by its high debt levels and poor share price performance this year -- plus of course its recent lack of profitability (it hasn't made a profit since 2010).

The StockRanks are a great way to get an instant snapshot of a company's qualities and characteristics, but I believe you need to look a little more closely before you can consider making a trading decision.

Growth & Value

Stockopedia's 12 month rolling forecast provides a very useful snapshot of a company's valuation, based on the latest analyst consensus forecasts.

Here's how things look for 

TUI Travel:Thomas Cook:

Thomas Cook appears to offer better value, with a forecast P/E of just 7.5, and forecast earnings growth of 55% over the next 12 months.

However, it's important to remember that Thomas Cook's debt problems haven't yet gone away. Stockopedia shows net gearing of 920% for Thomas Cook, and even if the firm manages to hit its target net debt level of between £300 and £350m by the end of the year, my calculations suggest that Thomas Cook will still have net gearing of around 300%.

That's a lot -- and explains why the firm isn't expected to pay a dividend until next year, unlike its peer TUI, which offers a 4% prospective yield.

Reality check

Shares in both companies have fallen by more than 5% this week due to concerns that the Ebola epidemic could hit…

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Thomas Cook Group plc is a holiday company. The Company's segments are United Kingdom, Continental Europe, Northern Europe and Airlines Germany. Its hotels and resort brands include Sentido, Sunprime, Sunwing, Sunconnect, Smartline and Casa Cook. It has airline operations in Belgium, Scandinavia and the United Kingdom. It has a fleet of over 90 aircraft under the Thomas Cook Airlines and Condor brands. It operates from approximately 20 source markets in Europe and China. Its Sentido brand has operations in Germany, Austria, Switzerland, Belgium, Hungary, Poland, Netherlands and Czech Republic. Its Smartline brand has operations in Germany, Austria, Switzerland, Belgium, Hungary, Poland, Netherlands and Czech Republic. Its Thomas Cook brand has operations in Germany, Austria, Switzerland, Belgium, Hungary, Poland and Netherlands. Its Sunprime Hotels brand has operations in Germany, Austria and Switzerland. Its Neckermann brand has operations in Germany and Austria, among others. more »

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TUI AG is a Germany-based integrated tourism group. The Company operates through the following segments: Hotels and Resorts, Cruises, Source Markets, divided into Northern Region, Central Region and Western Region, and Other Tourism. The Hotels and Resorts segment comprises all group-owned hotels and hotel shareholdings. The Cruises segment consists of TUI Cruises, a joint venture between TUI AG and Royal Caribbean Cruises, as well as Hapag-Lloyd Cruises and Marella Cruises. The Northern Region comprises the Group's tour operators and airlines in the United Kingdom, Ireland, the Nordics, Canada and Russia. The Central Region comprises tour operators and airlines in Germany and tour operators in Austria, Poland and Switzerland. The Western Region segment comprises tour operators in Belgium, the Netherlands and France. The Other Tourism segment comprises the French scheduled airline Corsair and central tourism functions, such as aviation management and information technology. more »

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  Is LON:TCG fundamentally strong or weak? Find out More »

6 Comments on this Article show/hide all

Edward Croft 9th Oct '14 1 of 6

If comparing stocks - always worth checking out the Stock Comparison tool on Stockopedia... quick way to assess fundamentals and technicals between 2, 3, 4, 5 stocks...

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Mark Carter 26th Nov '14 2 of 6

"In my view, TUI Travel is a more appealing option for most investors."

Given that the shares in TCG fell 17% on news of Harriet Green's departure, I'd say "good call".

Despite the Right's Issue, the z-score still puts TCG in the distress zone.

I also wonder if the poor momentum score of TCG was a bit of a tell. TCG was a fantastic recovery play more than a year ago, but things have seem to petered out since then.

It's good to see the improvement in free cahsflow, but not so good to see that like-for-like revenues has gone down. From what I saw at TCG's webcast this morning, it seems that we can expect plenty more write-downs over the course of the next year. TCG has a long way to go. TCG is never going to earn great returns on capital in any event/

In my view - for what it's worth, which is admittedly not much - I think the bulls are anchored on what a great recovery stock TCG HAD been, and its endorsement from certain high-profile investors.

It's a pity really, because I enjoy being a customer of Thomas Cook, and hope that they survive. Good luck to the bulls out there, and thanks for the article.

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Bonkuz_ 26th Nov '14 3 of 6

CEOs leaving in a hurry is never a good sign. I personally think she was pushed. But why?

Anyway, regardless of that the TCG story/recovery has been an interesting one to follow for me.

So It will be almost intriguing to see what unfolds (or not) over the coming days, weeks and months with TCG now that Ms Harriet has gone/going.

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Paul Scott 27th Nov '14 4 of 6


Sooner or later companies with weak Bal Sheets come unstuck.

Thomas Cook is insolvent - the worst Bal Sheet I have ever seen. Write off intangibles, and you have a disaster area. If you buy shares in this, you shouldn't be buying shares in anything.


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Mark Carter 27th Nov '14 5 of 6


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Bonkuz_ 1st Dec '14 6 of 6


Investing in Thomas Cook is one thing. But as with say QPP, there has been chances for some folks to make a little in the much much shorter term.

E.g. Would you "invest" in QPP. Hell No. Its on your barge pole list. However, have you made money from QPP in the much shorter term using other means (CFDs/Speads etc). Ho hum.

Personally, I find it interesting when hype/herd mentality takes precidence. Regardless. QPP has been a brilliant example of that this year. Its been like a dam soap opera hasn't it. Quite riviting some days too :-)

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 Are LON:TCG's fundamentals sound as an investment? Find out More »

About Roland Head

Roland Head

I'm a private investor, analyst and writer on stock markets, with a particular fondness for free cash flow, dividends and value. My main interests are UK and US stocks. I also have an interest in (profitable) commodity stocks.  I have passed the CFA Level 1 exam and hold the CFA UK Investment Management Certificate (IMC). One of my investment interests is developing rules-based strategies such as my Stock in Focus portfolio. This reflects a significant part of my personal portfolio and is the subject of my weekly column here at Stockopedia. In earlier life, I worked as an engineer in telecoms and IT. The rules-based and quantitative approach required for this kind of work undoubtedly influenced my investing style.  I also learned a lot from seeing the tech bubble deflate in 2000-1, when I was working for a very large and now defunct Canadian telecoms firm.  more »


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