Credit Suisse had upgraded FTSE 250-travel and leisure company Thomas Cook Group PLC (LON:TCG) to "Outperform" from "Neutral, as a recovery bolstered by competitor bankruptcies gathered pace.
The Swiss investment bank said the company’s new operating model and recovery underpinned a 29% potential upside to its 160p target price (increased from 112p).
READ: Thomas Cook reports quarterly revenue growth but warns over competitive market
Analysts highlighted three key factors underpinning its forecasts: “Our 2017-20E LFL EBIT CAGR of 10% is supported by i) £100-140m of self-help actions with the bulk of the 2020 plan driven by key partnerships with Expedia and LMEY (that led self-help saving targets to be raised), ii) £42m of recovery in German airline Condor at 3.3% EBIT margins vs management aspiration of 5-6% helped by sun/beach capacity slowing to +5%, iii) an improving UK backdrop with sun/beach capacity down 2% (post Monarch bankruptcy), fuel/fx pressure peaking in 2018 and recovery in key TCG destinations (Turkey, Egypt, Tunisia) with TCG flying 3x TUI's volume to Turkey this summer.”
They added: “A new reporting structure, disclosure and approach to modelling highlights TCG's robust margins (EBITDAR margins 13.3% vs 14.5% for EasyJet) and returns (20% on mid-life value) with clear strategic efforts enhance profitability – increased seat-only and long haul sales, Belgium exit to Brussels Airlines and creation of low cost Majorca base.”
The bank also listed a ‘Blue Sky’ valuation of 200p, which assumed a full recovery of TCG’s German airline Condor as well as its UK tour operator margins, which saw pre-tax earnings decline by £35mln during 2017.
Analysts commented: “We conclude that on balance the forecast risk has diminished and overall we raise our 2018-20E EPS forecasts by 4-10%.
READ: Thomas Cook to close 50 high street stores after reviewing UK retail network
“This improved outlook has been helped by key partnership deals – with Expedia and LMEY (announced in September 2017) and the bankruptcies of Air Berlin and Monarch (which happened in August and October 2017). Given the significance of these internally driven deals and external events it is notable that the share price is little changed since August last year” they added.
The analysis will provide optimism after a cautious outlook from the group in its quarterly results in February, in which chief executive Peter Fankhauser said: "This remains a highly competitive - and, at times, unpredictable – market”.
This followed a previous announcement in December when the company said it would seek to close 50 of its UK high street shops, citing challenging market conditions.
In late-morning trading Wednesday, Thomas Cook shares were up 5.2% at 133.4p.