The scarcely believable recent run of hot weather, coupled with the World Cup, is likely to have a knock-on effect on Thomas Cook Group PLC’s (LON:TCG) profits this year, according to City broker Numis.
Britain, along with most of northern Europe, has been basking in above-average temperatures for the past few weeks or so, coinciding with the football, which came to an end on Sunday.
According to Numis, that is likely to affect the ‘lates’ market, with fewer people looking to book a last-minute summer getaway.
Staycations proving popular
A combination of above-target inflation and stagnant wage growth has squeezed UK household incomes of late, encouraging people to save money and enjoy a ‘staycation’, especially while the weather is comparable with traditionally warmer countries.
Additionally, fewer people will look to book a holiday during a big sporting event like the World Cup, unless that is where they are travelling to.
Industry data has reportedly suggested that bookings for foreign summer holidays are 7% down on last year, and Numis doesn’t expect Thomas Cook to be “immune to these trends”.
It reckons the last time there was this combination of hot weather during a World Cup year was 2010, which turned out to not be a great summer for the Manchester-based airline.
Back then, Thomas Cook warned that trading had been “softer than expected” following the “weakness we saw…in June as a result of the World Cup and exceptionally warm weather”.
Still a ‘buy’ though
Numis expects the company will now have to cut its prices to get more bums on seats this summer and is trimming its full-year underlying earnings forecast by 7% to £332.8mln to account for that.
Despite that, the broker is upgrading the stock to a ‘buy’ from ‘hold’ on valuation grounds.
Even though the issues mentioned above – warm weather and football – Thomas Cook shares have lost 20% of their value over the past six weeks, whereas its peers have only taken a 10% hit.
Numis believes the shares are worth 154p, some 50% higher than the 103p they are currently changing hands for.