Citigroup has declared Thomas Cook’s shares as worthless after having plunged by 33% this Friday. Although the airline is worth around £738 million, its debt value is thought to be similar, meaning their equity value is essentially zero.

Dire Citigroup Forecast

Citigroup reached this conclusion after Thomas Cook had issued a profit warning reporting a £1.5bn half-year loss.

Morgan Stanley also shared Citigroup’s gloomy outlook on Thomas Cook, stating that the worst-case scenario would be a share price worth zero, but that the current price of 20p could rise to 50p in the best-case scenario.

Thomas Cook is currently in the process of looking for bidders of 105 jets in order to raise funds, and they say they have received multiple bids.

They have already closed 21 of their high street stores, and blame their problems on political unrest in common holiday destinations such as Turkey.

Furthermore, they have attributed last summer’s prolonged heatwave as a reason for people to be less keen on using their services.

Lastly, the delay to holiday bookings caused by Brexit, and competition from other low-cost airlines and travel agents may have been contributing factors for their current predicament.

Booking Down At Leading Travel Group

Bookings through Thomas Cook have dropped by 12% for this summer compared to in 2018, and it is thought that this news will only weaken the amount of booking further as consumers are likely to be unsettled.

Thomas Cook has previously been one of the leading travel groups in the world with annual sales of £9bn, 22,000 staff working around the world and as many as 19 million customers using their services each year.

In June 2018, their share price was trading at around 150p, but consistent profit warnings have driven the price down to a small fraction of this price. This has been their biggest drop since 2011, where banks agreed to provide funds for them so that they could continue to trade.

Despite the assurances of long-standing hotel partners, which have been supportive of Thomas Cook for many years, Thomas Cook is likely to have to seek tighter payment terms with these hotels. Citigroup has urged investors to sell their shares.

Sources:

(1) https://www.theguardian.com/business/2019/may/17/thomas-cook-shares-nosedive-after-citigroup-warning
(2) https://www.bbc.co.uk/news/business-46452374
(3) https://www.bbc.co.uk/news/business-48308001
(4) https://www.theguardian.com/business/2019/may/16/thomas-cook-slumps-to-loss-as-brexit-chaos-hits-travel-plans

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