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Travel industry woes weigh on Thomas Cook

Shares in Thomas Cook are under pressure as the travel industry is trailing.

A Thomas Cook sign
Source: Bloomberg

Thomas Cook Group will announce its full-year figures on 25 November, and traders are expecting revenue of £8.09 billion and adjusted net income of £128 million. These forecasts represent a 5.7% drop in revenue and a 21% fall in adjusted net income. The company will post its second-half figures on the same date, and dealers are anticipating revenue of £5.04 billion compared with first-half revenue of £2.74 billion.

Thomas Cook has had 12 straight quarters of improved profitability, but it still managed to register a loss for the three months until 30 June. The travel company’s CEO described the performance as ‘good’, and that it is ‘achieving positive results’ while losses are being reduced.

The attack at Tunisia and the financial uncertainty in Greece over the summer months hit earnings, and the airplane crash at Sharm el-Sheikh in Egypt will also weigh on the final-year results. Despite the distortion to the tourist trade, the firm eked out a small rise in revenue and managed to reduce its costs in the third-quarter.

The travel industry had a number of setbacks this year, and to make matters worse for Thomas Cook, adverse currency movements will also dent the annual figures; however the company stated it is still on track to achieve its full-year growth expectations. 

Equity analysts are bullish on Thomas Cook, and out of the 19 ratings, eight are buys, eight are holds, and three are sells. The average target price is 136p.8, which is 33% above the current price. Investment banks are even more bullish on rival TUI, and out of the 26 recommendations, 16 are buys, nine are holds, and one is a sell. The average target price is £13.23, which is 19% above the current price. 

Thomas Cook shares have repeatedly pulled back to the £1 mark over the past 12 months; a level which is accompanied by the 50% retracement of the 2012-2014 bull trend (99.45p). With the price currently approaching this level once more, it is clear that the reaction to this level will be a major determinant of sentiment going forward. Given the continued lower highs and flatlining bottoms, a break below support seems likely at some point. 

Thomas Cook weekly chart

On the four-hour chart, the two spinning top candles seen so far today have signalled that the selling may not quite be over quite yet, and thus a move back to the £1 mark seems likely in the near future. However, what the share price does at £1 will be the key, with a bounce and close above £1.05 likely to look towards £1.16 and £1.27 in the coming weeks. Otherwise a convincing daily close below £1 would point towards a sharp selloff where 78p, 69p and 58p represent the next major support levels.

Thomas Cook four-hour chart

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