Thursday newspaper share tips: Questions over Thomas Cook's business model

Thomas Cook Group’s return to profit after five years caught the eye of the Financial Times’ Lex on Thursday.

The travel and leisure business saw a marginal 1% lift in group revenue over the previous year, to £7.83bn, with underlying EBIT up 11% to £310m.

Profit after tax was where the real news lay, with a £177m increase to sit at £19m for the year.

The firm put the improvement down to a positive response to its “differentiated holiday offering”, with underlying EBIT in its UK business specifically up 42%.

Lex noted that Thomas Cook’s business model is that it buys flights in bulk, as well as owning hotels and planes, and then spreads the cost when it resells them.

It said it was amazing the company exists after a time when buying holidays online were not common place, and when the market was controlled by distributors.

But it said that it does more than exists – it in fact has some momentum, with the company coming back from a time when it almost collapsed.

However Lex advised traders should keep an eye on the audited numbers instead of the adjusted numbers, especially looking at cash flow.

It pointed out that of its £211m in audited operating profit, £179m of that was spent on finance costs.

Lex said that reducing the company’s £1.4bn of debt is the strategy it needs to adopt to increase the value of the company.

While management promises to cut it by £100m each year, the columnist said it won’t answer questions about the travel company’s business model.

Meanwhile in The Times, Tempus said there was good value in RPC Group.

The plastic products design and engineering company’s interim results showed revenue increased to £799.8 from £588.9m the previous year, as well as adjusted profit before tax, up 38% from £54.9m to £75.8m.

The company said its growth came down to its Vision 2020 strategy through both organic and acquisition-led growth.

Tempus said the company has looked at around 100 acquisitions over the last four years, but only agreed to six in the end.

It said it revealed the fragmented nature of the packaging industry and why other big UK players are snapping up whatever companies they can.

Tempus said the approach RPC takes shows it is cautious but successful.

As an example, the company said the integration with Promens is expected to now bring steady state cost synergies increasing to €50m (£35.3m) per annum, up from €30m.

But the pundit noted the industry is consolidating.

“Growth is limited and customers, such as the big supermarkets, are under pressure to cut costs and use more efficient packaging, including products such as one developed by RPC that allows food to be stored in plastic containers at room temperature.”

With benefits from future mergers and acquisitions still to be realised, Tempus said the shares look like good value and recommended buying them.