Brokers' view: Evolution

James Hollins, leisure analyst at Evolution, remarks on beleaguered travel agent Thomas Cook. Noting that the company received £100 million of debt funding, he argues that it has to ‘fundamentally adjust its operating model’, ‘savagely cut costs’ and ‘hope to benefit from more benign economic conditions’.

Noting that gross debt at the company stands at £1.5 billion, with bad press coming at a ‘low point in the booking cycle’, he rates the shares as neutral, adding that the industry as a whole ‘remains one to avoid given long-term structural issues’.  Hollins notes that fellow travel concern TUI Travel is rated as a sell by Evolution.

Invensys thinking
Harry Philips sees upside in engineering and IT outfit Invensys after its interim results. 

Remarking that operating profits of £104 million exceeded its forecast of £95 million, Philips elaborates that a £116 million outflow in working capital reduced net cash to £192 million while the second half is expected to generate what he calls a ‘seasonal improvement’.

Despite the ‘macro pressures’, he enthuses that ‘what we really like is the visibility and growth potential in both IOM (Invensys Operations Management) and Rail’ as the company moves from its ‘traditional mature markets’. 

Rating the shares as a buy with a target price of 370p, Evolution expects pre-tax profits of £242 million (EPS: 23.4p) in 2012 with profits of £266 million (EPS: 25.3p) pencilled in for 2013.