THOMAS COOK

All,

As per a Morgan Stanley note, the TCG airline business is worth £900m, or 3.5x EBITDA, which equates to 2.2x EBITDAR - in line with our initial view on the desk.

Plugging that into our model we sent yesterday, it implies that at the current share price TCG Tour Operator would have to be as valuable as TUI - following Tui’s correction. Presumably that’s how MS have come up with the valuation in the first place.

In light of TCG’s ongoing loss of market share to TUI, the diversification and relative size of the two businesses (TCG shrinking), 2018 trading performance and Brexit, we cannot quite see the rationale in that however. 

If in turn we remain with a 4x valuation of TCG as per our initial assumptions, the implied share price is 9p - after paying down the 22s - and thus would leave the remaining bonds (be it the 22s or the 23s), or even the bank debt if all bonds were bought back, as the equity.

In other words, we are wondering if a par bid for the bonds is remotely feasible. Its more likely that the banks will ask the company to maintain a higher cash balance and in light of the long maturities, in particular of the 23s the company uses a smaller amount of cash to buy some of the 22s in the market - presumably at a lower price than they are trading today if booking volumes and margins relative to last year are an indication for summer business relative to last year.

More work to be done. Thomas is your man.

Wolfgang