Thomas Cook shares slump and Lookers stalls on warning

Friday, July 12, 2019 - 09:49

“Continuing suggestions that a US rate cut is on the way helps put the FTSE 100 on course for a positive end to the week. With housebuilders helping to build gains for the index, the main faller was insurance firm Hiscox as it warned of deteriorating markets,” says AJ Bell Investment Director Russ Mould.

Thomas Cook

Thomas Cook – a one-time stalwart of the UK corporate world and a name with a history which goes back to the middle of the 19th century – looks like it will end up in the hands of its major Chinese shareholder Fosun.

“Customers may not see a huge difference, at least in the short term. However, the details of the rescue plan outlined by the travel operator suggest there will be very little left on the table for existing shareholders with debt being written off and converted into shares.

“Today’s news is the latest example of the need for businesses to be careful with their balance sheets, particularly when operating in an industry where costs and earnings can be unpredictable.

“This has been exacerbated by Brexit uncertainty and Thomas Cook was in a position where it needed cash just to get through the coming months with a plan to sell the airline business not coming off.

“Even the agreement mooted today does not have a clear flight path as it still needs the approval of shareholders and creditors.

Lookers

“The worry for investors in car dealership Lookers is that the severe problems being faced in the new car market are now spreading to the used car market where margins are under big pressure.

“Second-hand vehicles have seen prices enjoy a strong run in recent years helping to compensate for the difficulties seen in other parts of the market. It now looks like that trend has gone into reverse.

“Lookers has had engine trouble for a while with a series of downgrades earlier this year and it also faces an FCA probe over its sales practices. The company hints that it will incur some material costs relating to this process.

“While this investigation is hanging over Lookers, the shares could at best be stuck in neutral for a while.

“Until recently the company actually had a decent track record, but its reputation is now in tatters and will require a big repair job.

“Investors will get the opportunity to kick the tyres on the business at its first half results on 14 August with management under a lot of pressure to get its operations back on the right road.”

These articles are for information purposes only and are not a personal recommendation or advice.


The daily market update is written by Russ Mould, AJ Bell’s Investment Director and his team. The article highlights the movement in the main index, winners and losers on the day and any macro-economic announcements.