Thomas Cook shares nosedive by 33% after Citigroup warning

May 17, 2019 Off By readly

Thomas Cook’s shares plunged by more than a third on Friday, their biggest drop since the firm nearly collapsed in 2011, after a high-profile City analyst said the company could go bust.

Wall Street bank Citigroup produced a research note advising investors to sell shares in the company, which reported a £1.5bn loss earlier this week, citing a drop in holiday bookings due to Brexit uncertainty.

The bank set its target price – indicating the likely future value of the shares – at 0p. As the City digested the note, shares in the company nosedived by 33% at one stage, before recovering by midday to 25% below their opening price at 14.7p, cutting the company’s stock market value by £75m to £225m.

But Citigroup analyst James Ainley said he believed the company would soon have “zero equity value” because of an anticipated rise in its debts, which already stand at £1.2bn.

The firm has been in talks with lenders about injecting £400m of new funds to see it through next winter.

The scale of the crisis affecting Thomas Cook was laid bare earlier this week as it posted a £1.5bn first-half loss after experiencing a £1.1bn writedown on the value of its business. It also issued its third profit warning in less than a year and admitted that British customers had postponed travel plans for this summer because of Brexit uncertainty.

Citigroup said the results and concerns expressed publicly by its auditors would “unsettle consumers and drive further weakness in bookings”, which are already down 12% this summer compared with last year.

“Although the group has longstanding hotel partners that have been supportive, we fear that further weakness in the bonds/shares may also cause them to seek to tighten payment terms.”

Thomas Cook staved off collapse in 2011 after its banks agreed to provide funds to keep it trading.

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