The shares are "now in the 'special situation' bucket", the bank's analysts said as they cut their full-year underlying earnings (EBIT) and earnings per share forecasts for the group by 56% and 104% respectively.
A day after Thomas Cook confirmed it was in talks with major shareholder Fosun International about a possible offer for its core tour operator business, with "multiple" bids for its airline received, the Barclays analysts said they saw many “potential positive and negative catalysts”, with management’s strategic review also offering options.
Last month the holidays group posted a wider than expected loss for the first half and warned that earnings for the rest of the year would be weaker as Brexit uncertainty dampened demand, leading to some analysts declaring the stock worthless.
With significant share price volatility expected for the next six to 12 months, the analysts said their ‘equal weight’ recommendation remains in place but the share price target was slashed to 17p from 46p.
“Our break-up/sale scenario shows an upside case of 33p,” the analysts said in a note to clients. “Multiple preliminary discussions are underway including Fosun for the tour op and various parties for the airline. However, as a distressed seller, there is no guarantee that these potential buyers would be willing to pay premium multiples.”
Ignoring M&A, the Barclays analysts think the fundamentals are “challenging” and their downside case is 0p as covenants could be breached in the October-to-December quarter as the remaining company “may struggle to meet financing requirements” even if the airline is sold.