Market at new High,Beware of Modern Harshad Mehtas,shift to Quality from Poor Quality stocks.

Oh TC is legacy investment made by my parents which I wish to hold on to.

Cox and Kings and Mahindra have been purchased by me - given my belief in the tourism overall and individually to cover different themes within it.

It's Mahindra Holidays that I like the most btw.

 

WHY THOMAS COOK IS A GREAT BUY

Thomas Cook(TC) yesterday sold 15% of its holding in Quess Corporation(QC) and realized Rs. 651 crores. The inflow is going to be used for reducing its long term debt of Rs. 720 crores. Thus wef from today TC will be literally a debt free co. This could lead to an interest savings of about Rs. 50 crores adding 1.40 to its EPS annually. TC earnings have already started increasing – gone up from 2.24 to 3.87 in HY ended 30.09.17 an increase of 175%. One will be really surprised if it fails to have an EPS below 6.5 for FY18. Acquisition of EPS accretive BPO business from Tatas BPO business may add some more. Current PE on that EPS is 35 down from 100+ an year ago. Earnings could be close to Rs. 10 for FY19 with routine growth and additional earnings from new acquisitions. Thus on 1 year forward basis TC is available at a PE of ~ 23 which can easily grow back to 30 in next 6 months leading to a price of Rs. 300. For investors willing to hold longer returns could be very heartening. It is still left with 51% of Quess, which is expecting, a CAGR of 20% in next 2 years. If Quess manages that, its price will rise and TC investment value will rise proportionately with positive impact on its share price.

 

I don't actively track TC for like I said before it's a legacy holding.

Debt free and interest savings is all fine. But what's the impact on consolidated position - probably considering higher minority interest outflows

 

Could not find anything substantial in the P&L account on this account. So can't really comment on that part. However, don't understand the comment "Debt free and interest savings is all fine". I believe these are THE material things and relevant for a stock valuation.

 

They are but in this case is not the complete picture. the debt repayment is through the sale of strategic investment in a very profitable and growing subsidiary and this dilution entails a cost. 76% profits of quess were of TC. Now only 51% will be. - consolidation of subsidiaries with holding company will reflect this in future.

And debt is never a taboo. Infact any CFO will consider the debt route so long the IRR is positive - ofcourse ensuring the debt equity ratio doesn't spiral away. Not to forget interest payouts is above the line and tax deductible.

 

TC had only 65% holding. Balance 11% was with Mr. Isaac. Assuming Quess continues the HY trend, its NP would be ~350 crs with TC share in it lower by ~54 crs. Annualized saving for TC will be very close it. Hence very little effect at least in immediate future. The co. has maintained its strategic hold on Quess by ensuring balance holding at 51%. Further, I feel TC has already completed major part of its acquisition and has almost 70 subsidiaries. Its time for it to consolidate the operations and concentrate on improvement in consolidated earnings. In the circumstances, liquidating liabilities by selling some holding in a overpriced market does not look like a bad idea.

 

My case rests my friend.

 

Keep us informed sir if any new pick plz.