Broker tips: Thomas Cook, Shell, Euromoney

Credit Suisse slashed its target price on shares of Thomas Cook as a result of the toll which geopolitical pressures were taking on the company's bookings.

The Swiss broker said the travel&leisure operator's first half results had been good, further pointing out that further refinancing had been achieved.

However, booking trends - impacted by geopolitical events in both source markets (Brussels) and destinations (Turkey) - had pushed booking trends 5% lower year-on-year.

As a result, the company's guidance for full-year earnings before interest and taxes had come in at between £310m to £335m, excluding a favourable tail-wind from currency translation effects to the tune of £20m (consensus: £343m).

"The c£40m difference principally reflects around £10-15m from weaker Belgian trading post the Brussels airport attack (Belgian 2015 EBIT £18m) and £20-25m from weakness in Condor (the German airline), which is adapting to material schedule changes away from Turkey and broader competitive challenges in a market facing high supply growth."

Credit Suisse also estimated bookings in Turkey had fallen by between 40% to 50%.

Analyst Tom Ramskil cut his target price on the stock from 135p to 100p, but kept his recommendation on the shares at 'outperform'.

The analyst lowered his full-year reported EBIT target for the company to £320m.

Ramskil justified his decision regarding the latter on the basis that "key changes in the business remain in evidence" thereby supporting his estimates for Thomas Cook's earnings per share to continue growing at a compound annual growth rate of 23% between 2015 and 2018, albeit adding that "we fully acknowledge EPS risk remains high".

Royal Dutch Shell's latest set of full-year numbers, but cash flow was weak, Charles Stanley analyst Tony Shepard said ahead of the oil major's Capital Markets Day.

The integrated oil company's ability to ring up cash for shareholders was "extremely weak", Shepard said in a research note sent to clients.

That gave the analyst cause for concern given Shell's levels of net debt and gearing were "much higher than anticipated".

Shepard admitted the recovery in the oil price was a relief, which could boost profitability in the second half of 2016.

However, the oil company needed to turnaround its cash flow and get its gearing level below 20%, he added.

With the company's Capital Markets Day on 7 June now nearly at hand, the broker downgraded its recommendation on the stock from 'buy' to 'hold'.

"Although Shell’s operational performance is improving, the higher debt suggests that the divestment plan has become more important."

Euromoney Institutional Investor has reported a weak first half but the results were in line with expectations and the company’s full year guidance was maintained, Canaccord Genuity said on Thursday.

Canaccord reiterated a ‘buy’ rating and raised its target price to 1,128p from 1,100p, citing signs of progress and a strong net cash position in Euromoney's interims.

Euromoney reported a drop in first half pre-tax profits to £23.4m from £93m, reflecting a slump in advertising revenues and weak energy and commodities markets.

Revenues fell to £194.2m from £197.7m. Underlying advertising fell by 13% and underlying event revenues by 7%.

Adjusted operating profit fell by 7% to £46.8m, with the decline in revenues and margin partially offset by favourable currency movements. The strength of the US dollar had a positive impact on the results with an average sterling-US dollar rate falling to $1.47 (2015: $1.56).

“The challenging market conditions we experienced in the last 12 months continue. Nonetheless, there are early signs of progress from the strategic actions we are taking, the comparatives are becoming less challenging and currency is on our side at the moment,” the company said.

“We therefore expect, subject to currency movements, to deliver a second-half performance similar to last year's and a full-year performance in line with the board's expectations.”

Canaccord noted that the company’s cash flow was better than expected in the first half. Net cash of £56m, before proceeds of recent disposals, compared to a £35m forecasts.

As a result, the broker upgraded its full year net cash forecast to £91.4m from a previous estimate of £67m. Canaccord also retained its pre-tax profit forecast of £100.9m and earnings per share prediction of 62.2p.

“The shares have had a good recent run, up by 10% since the beginning of March, but they still trade on a calendarised 2017 PER of 15.0x and EV/Ebitda of 10.1x, which represents a material discount to the UK professional publishing peer group, despite Euromoney's significantly superior cash position and much higher percentage of revenues coming from high quality subscription products,” said Canaccord analyst Simon Davies.

“We also view the business as an attractive Brexit hedge, given its significant exposure to US$ revenues.”