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Thomas Cook upgraded to 'neutral' by UBS on profit recovery expectations

Published: 11:14 27 Sep 2018 BST

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Thomas Cook cut its 2018 profit outlook, blaming a heatwave in northern Europe over the summer

Thomas Cook (LON:TCG) has been upgraded to ‘neutral’ from a ‘sell’ recommendation by Swiss investment bank UBS (NYSE:UBS).

The travel group saw its shares plunge by over a fifth on Monday after it cut its 2018 profit outlook, blaming a heatwave in northern Europe over the summer which meant there was more discounting and tougher competition in the later part of the holiday season.

READ:  Thomas Cook plunges as 2018 profit outlook chopped on more discounting, tougher competition after summer heatwave

UBS analysts put down Thomas Cook’s lacklustre fourth-quarter performance down to the impact of the hot summer weather in the UK and overcapacity in the travel sector.

“Going forward we expect flat to contracting capacity in FY19 and a partial recovery of profits,” UBS analysts said in a note to clients.

“In this environment, we believe the company will need to optimise its UK retail shop network – keeping exceptionals high. Furthermore, the technology platform may need improvements to compete in a growing online market,” they added.

The Swiss bank cut Thomas Cook’s price target to 60p a share from 85p to reflect higher debt and lower cash estimates over the medium-term. UBS also downgraded the company’s 2019 earnings per share forecast by 25% due to expected flat capacity next year and lower margins for tour operators and airlines due to increased competition.

Shares in the 177-year old company were 0.5% down at 59.94p in late morning trade.

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