Thomas Cook (India): All growth engines firing up

21 Nov 2023 , 12:03 PM

Analysts of IIFL Capital Services recently hosted the senior leadership team of Thomas Cook for investor interactions in Singapore. Following are the key takeaways: 

• The company is on track for strong earnings growth in the coming years, driven by: 1) Growth acceleration at Sterling Holiday Resorts. 2) Robust pickup in growth in the overall travel and forex divisions, backed by macro tailwinds. 3) Substantial margin-expansion potential in travel/forex.
• In the last three years, Sterling Holidays Resorts (Sterling) underwent a significant transformation in its business model — transitioning from a focus on timeshare to a more resort-centric approach. This shift placed emphasis on occupancy rates and ADRs that transformed a loss-making entity into a highly profitable one. It now aims to accelerate growth.
• Despite challenges posed by the pandemic, the company successfully expanded gross margins in both travel and foreign exchange sectors. Reset of its cost base has led to a remarkable 25% reduction vs the prepandemic levels.
• Analysts of IIFL Capital Services expect EPS to grow ~32% Cagr over FY24-26, despite strong recovery in FY24 PAT, led by margin expansion in travel/forex and scaling up in Sterling. At 22xFY26 EPS, valuations look attractive given the robust growth outlook and Fairfax cachet.