Today I am discussing the investment appeal of three Thursday newsmakers.
Bookings battered
Shares in travel titan Thomas Cook (LSE: TCG) have shed 17% of their value on Thursday following a disastrous trading update.
The tour operator advised that bookings for the critical summer period have dived 5% year-on-year as recent terror attacks in Egypt, Turkey and Tunisia have weighed heavily. Consequently Thomas Cook saw revenues slip 2.6% during October-March, to £2.67bn, although pre-tax losses narrowed to £288m from £303m in the corresponding period last year.
On a brighter note, chief executive Peter Fankhauser commented that
“we’ve managed to slightly grow our revenues on a like-for-like basis, having anticipated the shift in demand away from Turkey, Tunisia and Egypt and into the Western Mediterranean and long haul destinations.”
But Thomas Cook’s reshaping programme could take some time to bed in, and today’s murky update will inevitably lead to a spate of broker downgrades. The City had pencilled in earnings growth of 20% and 22% in the years to September 2016 and 2017 respectively.
Subsequently Thomas Cook may be considered a gamble too far despite current, conventionally-low P/E ratings of 8.2 times for this year and 6.6 times for 2017.
Screen idol
Shares in cinema chain Cineworld (LSE: CINE) were fractionally lower in Thursday trading despite the release of exceptional trading numbers.
Cineworld saw total revenues climb 9.8% during the 19 weeks to May 12th, with box office takings rising 7.6% in the period. The company benefitted from blockbusters like Deadpool and Captain America: Civil War hitting the screens, it said, and is likely to benefit from huge releases like Independence Day 2 in the coming months.
The abacus bashers expect earnings at Cineworld to edge 1% higher in 2016 before accelerating 10% next year. Consequently a reasonable P/E rating of 16.7 times for the current period slips to a terrific 14.9 times for 2017.
I believe this represents terrific value given that Cineworld’s expansion plan across Britain, Central and Eastern Europe and Israel — allied with surging ticket demand — should power earnings growth well into the future.
Next please!
At face value latest UK retail sales numbers should have provided welcome relief for clothing giant Next (LSE: NXT), particularly in the wake of recent profit warnings from the firm.
The Office of National Statistics (ONS) advised today that total sales galloped 4.3% year-on-year in April, and up 1.3% from the prior month.
However, the ONS also commented that
“clothing stores remain the main drag on growth in the retail sector, with sales hampered by unseasonal weather. However, both the volume and value of sales increased in April compared with March as lower prices boosted sales.”
The clothing segment is becoming embroiled into an increasingly-bloody price war as competitive pressures rise online and in-store, creating plenty of obstacles for earnings growth.
The City expects Next to record a marginal 1% earnings uptick in the year to January 2017, although an improved 5% rise is pencilled in for 2018. These projections leave the retailer dealing on attractive ‘paper’ valuations of 12.3 times for 2017 and 11.8 times for next year. Still, I believe the potential for fresh profits downgrades makes Next a risk too far for cautious investors.
