Scottish Widows UK equity funds collectively held some £12 million-worth of shares in Thomas Cook Group (TCG) as at end-September, according to Morningstar fund holdings data, which is now likely to be worth as little as £3 million after the beleaguered travel operator announced money trouble this morning. At end-September, HSBC Asset Management also had four funds invested in Thomas Cook at end-September that together owned 12.8 million shares, worth over £5 million at yesterday’s closing price but more like £1.25 million today.
The Sun Refuses to Shine on Thomas Cook
Shares in Thomas Cook tumbled 75% on Tuesday, valuing the holiday firm at just over £89.25 million by close of play versus around £360 million just 24 hours prior. Management announced it is renegotiating its banking facilities and delaying the release of full-year results due to deteriorating trading conditions.
The company said it was currently in compliance with its banking covenants but was seeking to improve its "resilience". Group Chief Financial Officer Paul Hollingworth, who himself holds over 150,000 shares according to Morningstar equity data, said the company was seeking to negotiate additional short-term facilities to the value of approximately £100 million, on top of around another £100 million in additional finance announced in October. Its net debt stood at £900 million at end-September.
Fund Providers Share 17% Holding
With bank financing (in)famously hard to come by in the current financial climate, investors hurriedly sold off shares in Thomas Cook on the back of the announcement. Morningstar’s most recent fund holdings data shows that the Scottish Widows UK equities funds tallied up a total 3.0% exposure to Thomas Cook at the end of September. Scottish Widows’ UK equities team declined to comment on Tuesday.
Close to 150 million shares in Thomas Cook, or 17% of the company’s total shares in issue, are held by U.K.-domiciled funds available for sale in the U.K., Morningstar data shows. Of those funds, Scottish Widows UK Equity Income had 8.5 million shares in the holidaymaker as at end-September, while another 5.5 million were held by Scottish Widows UK Growth (rated Neutral by Morningstar fund analysts), 4.2 million by Scottish Widows High-Reserve and 3.9 million by Scottish Widows UK Select Growth. HSBC’s UK Growth & Income Fund held 9.8 million as at end-September, while the HSBC FTSE 250 Index fund had another 777,000 shares.
Other fund providers exposed to the travel group include Henderson, with 1.5 million Thomas Cook shares across its fund offerings, and L&G, with close to 2 million shares in total.
Gloomy Forecast until Course Is Clear
Until further clarification is provided on the travel operator’s finances, the shares are likely to show continued weakness. Negative publicity that will follow today’s news runs the risk of scaring customers into changing holiday plans, further hurting the operator’s revenues, but investors convinced by the firm’s fundamentals have a stellar opportunity to get into the stock at drastically-reduced levels.
For existing shareholders, the news is particularly disappointing given that it comes just one month after the group previously renegotiated with debtors an increase in the headroom on its facilities for 2012, highlighting just how swift the deterioration in trading conditions must have been. While Thomas Cook shares closed down 30.9p at 10.2, industry peer TUI Travel (TT.) lost 9.2% to settle at 136.7p on the negative read-across.
Fund data is as of funds domiciled in the U.K. and as of portfolio date indicated for each fund. These positions may have changed substantially since the portfolio date.
