MARKET COMMENT
Bottom Fishing At MyTravel

By Stuart Watson (TMFTiger)
December 11, 2003

The tale of MyTravel (LSE: MT.) is indeed a sad one. Floated in 1987, for the next twelve years or so, it was a stock market star. It grew quickly, acquiring businesses like Pickfords and Hogg Robinson along the way. Its shares peaked at 545p in 1999. The following year sales topped £5b and profits exceeded £200m.

The MyTravel of today has only just avoided the ignominy of joining the 99% club. Its shares hit 8p last week and now trade at 11p. Its downfall echoed much of the telecom sector in that it was caught in the pincer grip of a fall in business activity and too much debt, courtesy of its acquisition binge. Incredibly, nine directors have left the company in the last year or so.

The company has just revealed a whopping loss of over £0.9b, significantly greater than had been expected. At the operating level, it lost £358m. Write downs, interest costs and exceptional charges made up the balance. Its £1.3b of debt and finance facilities have been refinanced to at least May 2006 and convertible bonds amounting to £222m have been extended to January 2007. Recent disposals are expected to bring in almost £150m, easing the debt burden a little. The company said it was aiming to be profitable in 2005, following a cost-cutting programme.

So it is time to go bottom fishing with MyTravel? Unlike many other refinancings we have seen in the last year or so, its debt levels haven't actually been reduced. So the company does not have the clean(ish) slate enjoyed by firms like Marconi (LSE: MONI).

It's also very difficult to get a clear picture of the conditions attached to its borrowings, such as success fees based on its market value and so on. The presentation of the figures released today in this regard is frankly appalling. Let's hope the annual accounts, when they are released, are much clearer. Sounds like a good first job for the new finance director, who was appointed today.

As far as the turnaround of the business goes, the company made all the right noises this morning and seems to have a clear plan of action. It does admit that the scale of the exercise is much greater than was previously thought. Annual sales are now below £4b. That makes it almost twice the size of First Choice (LSE: FCD), which reported an excellent set of figures a couple of days ago and gives some indication of what might be achievable. If the recovery goes according to plan and the debt situation can be clarified and shown to be not too demanding, the shares have decent recovery prospects. But it remains an exceedingly high-risk opportunity.