Thomas Cook shares dive as broker rates them at zero

EMBATTLED Thomas Cook suffered a fresh blow yesterday as a leading City broker said its shares are now worthless.

Citigroup downgraded the travel agent’s stock to zero pence following Thursday’s shock announcement that half-year losses had hit £1.5bn and Thomas Cook had been forced to ask lenders for £300m in emergency funding. Losses were driven by a £1.1bn writedown of its UK business.

Citi said there was “option value only” left in Thomas Cook’s shares, which tumbled 40pc to 11.8p yesterday after the remarks. They sparked a further sell-off of the company’s bonds, which are now trading in the mid-40 cents in the euro, raising doubts over whether they will be repaid in full.

The broker went on to warn of a “vicious circle”. “Although the group has long-standing 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,” Citi wrote.

Analysts also pointed out lenders could “walk away” from providing £300m of loans, which Thomas Cook chief executive Peter Fankhauser said on Thursday were dependent on “progress” in selling its airline.

Thomas Cook put its airline on sale earlier this year to raise cash and pay down debt. Some in the City said the sale could fetch as much as £1bn, but Citi painted a much gloomier picture, valuing the carrier at £360m once airline-related debt was repaid. “We struggle to see the group receiving a high enough offer to prevent the deal being dilutive to earnings,” they added.

Mr Fankhauser warned this week of the “challenging” operating environment, with higher fuel and hotel costs, consumer uncertainty putting pressure on margins despite the company’s attempts to reduce capacity and cut its exposures to the “lates” market.