The Thomas Cook (LSE: TCG) share price has been one of the worst-performing investments on the London market over the past three years. Shares in the travel business are down by 54% over this time frame. They’ve fallen 93% over the past 12 months.
The company is now in the process of a dramatic £900m recapitalisation plan, which will see its largest shareholder pump £450m into the business. In exchange, Fosun will receive 75% of the equity in Thomas Cook’s travel division and 25% of the equity in its airline.
Management is hoping that this deal will allow existing shareholders to retain their holdings in the business, although the firm has warned that current shareholders will be “significantly diluted” as part of the deal.
According to the group’s press release announcing recapitalisation: “The current intention of the board is to maintain the company’s listing. However, the implementation of the proposed recapitalisation may, in certain circumstances, result in the cancellation of the company’s listing.“
Management’s assessment of the situation is based on Thomas Cook’s current financial position. This is not a fixed situation, and it could change quickly as we move into the critical winter season.
Tour operators usually rely on a busy summer period to see them through the winter, when they typically lose money. Thomas Cook wants to seal the deal before winter starts to give it enough liquidity to survive until next season. If winter sales come in below expectations or the transaction takes longer than expected to complete, this could cause significant problems for the group.
Double or nothing
So, at this point, it’s difficult to tell what the future holds for the Thomas Cook share price. That being said, some City analysts believe that the stock could be worth as much as 18p based on what we know right now.
Of the 10 analysts covering the company, three have a “buy” rating on the stock. Six recommend investors “hold” the security and just one is a seller. The median price target of these analysts is 13p, more than 100% above current levels. As mentioned above, the highest target is 18p and the lowest is zero.
These figures seem to suggest that the Thomas Cook share price could double your money. However, I wouldn’t rush to follow these forecasts from the City. These analysts don’t know much more than the rest of the market right now. For example, they can’t say with any certainty whether or not the recapitalisation plan will wipe out shareholders.
The bottom line
Their assessment of the underlying value of the business might be correct at this point, but that could change quickly if the company has to ask for more money from investors or creditors. That’s the big unknown here, and it makes it impossible to tell right now how Thomas Cook’s restructuring will unfold. As a result, even though some analysts reckon the stock could be worth as much as 13p, I would avoid the enterprise for the time being.
Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.