Tourism Holdings
Written by
Tourism Holdings |
FY16 on track |
AGM |
General industrials |
24 November 2015 |
Share price performance
Business description
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Analysts
Tourism Holdings is a research client of Edison Investment Research Limited |
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At its Annual Meeting Tourism Holdings (THL) provided guidance for FY16 of NZ$37m EBIT and NZ$22m NPAT. This is an expected annual increase in NPAT of 10%. THL reported that the tourism markets in its key markets of New Zealand and Australia remain strong and that ongoing focus on cost reduction, improved efficiency and innovative ways to reduce capital costs are expected to drive ROCE. The company expects to achieve its long-term average ROCE of 14% in FY16. Our FY16 EBIT forecasts EBIT are unchanged. There have been some minor changes to interest and tax to reduce our FY16 NPAT forecasts from NZ$23m to NZ$22.4m.
Year end |
Revenue (NZ$m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
06/15 |
237.3 |
31.4 |
17.9 |
15.0 |
12.7 |
6.6 |
06/16e |
250.6 |
34.7 |
19.6 |
18.0 |
11.6 |
7.9 |
06/17e |
262.7 |
39.1 |
22.4 |
20.0 |
10.2 |
8.8 |
06/18e |
274.5 |
42.4 |
24.3 |
22.0 |
9.4 |
9.6 |
Note: *PBT and EPS are normalised, excluding intangible amortisation, exceptional items and share-based payments.
Turnaround story close to completion
Following a strategic review, THL announced that expected FY19 NPAT would be NZ$30m without any greenfield development or any acquisitions. Using the company’s FY16 guidance, this implies a CAGR in NPAT of ~11% pa for the period FY16 to FY19. The 2015 results established a new performance baseline for THL, from which it expects to continue to lift individual business unit performance. Focus will be maintained on innovative ways to reduce the capital intensity in the business and to achieve a target ROCE of 14% across all business units.
Strategy for growth
THL has three key strategies for growth: 1) the previously announced initiatives of Total Customer Experience, the Flex Fleet plan and the launch of Telematics; 2) entry into the sharing economy; and 3) acquisitions. The long-term fundamentals for the business remain positive with increasing airline capacity, a growing middle class, particularly in the close-by Asian region, and a growing number of experience seekers around the world.
Valuation: 10% discount to peers = NZ$2.62
Our valuation applies a discount of 10% to the peer group (using an FY16e EV/EBIT multiple). A change in peer group multiples has resulted in our DCF increasing from NZ$2.50 to NZ$2.62. Our DCF of NZ$2.42 does not take into account value added from future acquisitions, which remains part of THL’s strategy. Our view is that THL will continue to trade at some discount to the peer group because it lacks size and diversity.
Guidance
THL provided guidance for FY16 of EBIT of approximately NZ$37m and NPAT of approximately NZ$22m, which is an increase of 10% on FY15 NPAT and equivalent to a 9.5% increase in EPS.
We have made some minor changes to our forecast below the EBIT line, as shown in Exhibit 1 below.
Exhibit 1: Forecast changes
NZ$m |
2016e |
2017e |
2018e |
|||||||
Old |
New |
Variance |
Old |
New |
Variance |
Old |
New |
Variance |
||
Revenue |
250.6 |
250.6 |
0.0 |
262.7 |
262.7 |
0.0 |
274.5 |
274.5 |
0.0 |
|
EBITDA |
72.1 |
72.1 |
0.0 |
76.6 |
76.6 |
0.0 |
80.3 |
80.3 |
0.0 |
|
EBIT (after associates) |
37.4 |
37.4 |
0.0 |
41.5 |
41.5 |
0.0 |
44.8 |
44.8 |
0.0 |
|
NPAT |
23.0 |
22.4 |
(2.8) |
25.6 |
25.5 |
(0.5) |
27.8 |
27.7 |
(0.5) |
|
EPS (cps) |
20.4 |
19.6 |
(3.9) |
22.7 |
22.4 |
(1.3) |
24.7 |
24.3 |
(1.6) |
|
DPS (cps) |
18.0 |
18.0 |
0.0 |
20.0 |
20.0 |
0.0 |
22.0 |
22.0 |
0.0 |
|
Source: Edison Investment Research
Growth initiatives
The Flex Fleet option, which was explained in a September 2015 investor update, has successfully commenced in New Zealand with 10% of the fleet pre-sold before the vehicle entered the rental fleet. There is also a buyback mechanism in place for some of the ‘pod’ van concept (the ‘pod’ is an insert that can be slotted into the vehicle to include the living quarters and removed when the vehicle is ready to be sold into a different market such as the small passenger van market). The company’s objective is to move closer to the model it has been able to exploit in the US because the market there allows THL to turn the fleet over every 12-18 months. This minimises the effective capital cost of the van, which is possible because of the market size. The Flex Fleet option means that vehicles can be added to the rental fleet and then removed in within 12 months either by selling into the recreational vehicle market or by converting the vehicle from a recreational vehicle into a passenger vehicle. THL plans to introduce Flex Fleet into the Australian market.
THL is using the Total Customer Experience (TCEx) concept to sell customers a holiday experience rather than just renting them a recreational vehicle. Central to this offering is the mobile app CamperMate, which allows THL to connect with the customer and offer other tourism products and information. Travellers can also post comments that can be used by potential customers to gauge the quality of THL’s product.
THL has begun running a telematics pilot with the objective of reducing accident damage, reducing repairs and maintenance costs and improving productivity. The in-vehicle information system provides warnings relating to road conditions, excess speeding or other inappropriate driver behaviour.
THL is putting a toe in the water of the sharing economy. In New Zealand there are ~25,000 privately owned recreation vehicles and THL is using its Mighway product to manage renting privately owned vehicles to tourists. The New Zealand pilot study is being treated as a start-up and may make a small operating loss in FY16, which has been included in THL’s guidance of FY16 NPAT of ~NZ$22m.
The Waitomo Caves Homestead will open in December 2015 and, with restaurant and retail offerings, it should help build visitor numbers, particularly from the growing Chinese markets.
There are no immediate plans for acquisitions, but the company remains open to value-enhancing opportunities.
Valuation
Our valuation method is based on comparative company analysis supported by our DCF valuation. We consider that in the last two financial years THL has demonstrated operational excellence and skilled management to produce bottom-line operational growth (defined as growth in EBITDA) in excess of revenue growth. The company expects this to continue and has already informed the market that it expects CAGR in NPAT to be 11% for the next three years to 2019. We believe this expectation is reasonable because the strength of the tourism market, particularly Asian visits to Australia and New Zealand, should drive solid revenue growth of 4-5% and improvements in fleet management and cost control could contribute 5-6% to annual NPAT growth
Our DCF, which uses a WACC of 10% and terminal growth rate of 3%, is NZ$2.42, which is NZ$0.20 less than our valuation using an FY16e EV/EBIT multiple of 11.3x discounted by 10%. The terminal value accounts for 52% of the DCF. However, our DCF does not include the impact of future value-adding acquisitions and is therefore likely to understate the value. Acquisitions remain part of the company’s growth strategy.
Our previous multiple-based valuation of NZ$2.50 applied a 10.0% discount to take into account THL’s size, lack of diversity and execution risk. We have applied the same discount to our current multiples-based valuation. Since then, the peer group’s FY16e EV/EBIT multiple has increased from 10.3x to 11.3x. We have excluded Flight Centre (FLT.ASX) from the peer group because of company-specific issues.
Exhibit 2: Peers
Company |
Ticker |
Y/E |
Currency |
Market |
P/E (x) |
EV/EBIT (x) |
||||||
2015 |
2016e |
2017e |
2018e |
2015 |
2016e |
2017e |
2018e |
|||||
Air New Zealand |
AIR.NZ |
June |
NZ$ |
3,141 |
8.7 |
5.7 |
7.0 |
7.5 |
8.2 |
5.0 |
6.2 |
6.7 |
Amalgamated Holdings |
AHD.AU |
June |
AUD |
2,345 |
18.2 |
20.3 |
18.9 |
17.1 |
12.6 |
13.9 |
13.0 |
14.4 |
Ardent Leisure |
AAD.AU |
June |
AUD |
1,233 |
29.4 |
20.5 |
17.1 |
15.3 |
24.8 |
17.8 |
14.5 |
12.5 |
Fleetwood |
FWD.AU |
June |
AUD |
87 |
N/A |
11.2 |
7.4 |
7.3 |
29.2 |
10.9 |
8.4 |
8.7 |
Qantas |
QAN.AU |
June |
AUD |
7,961 |
12.4 |
6.9 |
6.6 |
6.3 |
8.8 |
5.9 |
6.1 |
6.5 |
Village Roadshow |
VRL.AU |
June |
AUD |
1,158 |
23.1 |
19.0 |
17.4 |
15.7 |
17.9 |
14.4 |
13.2 |
12.1 |
Average |
18.4 |
13.9 |
12.4 |
11.5 |
16.9 |
11.3 |
10.2 |
10.2 |
||||
Tourism Holding |
THL |
June |
NZ$ |
255 |
12.5 |
11.4 |
10.0 |
9.2 |
9.5 |
9.0 |
8.4 |
7.6 |
Source: Bloomberg and Edison Investment Research for THL. Note: Prices as at 17 November 2015.
Exhibit 3: Financial summary
NZ$’000 |
2015 |
2016e |
2017e |
2018e |
|||
30-June |
IFRS |
IFRS |
IFRS |
IFRS |
|||
PROFIT & LOSS |
|||||||
Revenue |
237,264 |
250,570 |
262,685 |
274,467 |
|||
Cost of Sales |
(60,287) |
(66,878) |
(70,458) |
(74,247) |
|||
Gross Profit |
176,977 |
183,692 |
192,227 |
200,220 |
|||
EBITDA |
65,561 |
72,077 |
76,565 |
80,279 |
|||
Operating profit (before amort. and except.) |
35,878 |
39,070 |
43,131 |
46,506 |
|||
Intangible Amortisation |
(1,583) |
(1,660) |
(1,660) |
(1,660) |
|||
Exceptionals |
0 |
0 |
0 |
0 |
|||
Other |
0 |
0 |
0 |
0 |
|||
Operating Profit |
34,295 |
37,410 |
41,471 |
44,846 |
|||
Net Interest |
(4,446) |
(4,378) |
(4,012) |
(4,116) |
|||
Profit Before Tax (norm) |
31,432 |
34,692 |
39,119 |
42,390 |
|||
Profit Before Tax (FRS 3) |
29,849 |
33,032 |
37,459 |
40,730 |
|||
Tax |
(9,750) |
(10,670) |
(11,987) |
(13,034) |
|||
Profit After Tax (norm) |
20,099 |
22,362 |
25,472 |
27,696 |
|||
Profit After Tax (FRS 3) |
20,099 |
22,362 |
25,472 |
27,696 |
|||
112.9 |
113.8 |
113.8 |
113.8 |
||||
EPS - normalised (c) |
17.9 |
19.6 |
22.4 |
24.3 |
|||
EPS - normalised fully diluted (c) |
17.0 |
18.7 |
21.3 |
23.2 |
|||
EPS - (IFRS) (c) |
17.8 |
19.6 |
22.4 |
24.3 |
|||
Dividend per share (c ) |
15.0 |
18.0 |
20.0 |
22.0 |
|||
Gross Margin (%) |
74.6 |
73.3 |
73.2 |
72.9 |
|||
EBITDA Margin (%) |
27.6 |
28.8 |
29.1 |
29.2 |
|||
15.1 |
15.6 |
16.4 |
16.9 |
||||
BALANCE SHEET |
|||||||
Fixed Assets |
274,227 |
274,893 |
276,856 |
274,454 |
|||
Intangible Assets |
20,753 |
19,093 |
17,433 |
15,772 |
|||
Tangible Assets |
244,412 |
246,739 |
250,361 |
249,620 |
|||
Investments |
9,062 |
9,062 |
9,062 |
9,062 |
|||
Current Assets |
44,054 |
32,596 |
34,524 |
40,832 |
|||
Stocks |
15,996 |
8,999 |
9,383 |
9,790 |
|||
Debtors |
17,820 |
16,757 |
17,549 |
18,341 |
|||
Cash |
6,526 |
(6,871) |
(16,120) |
(11,011) |
|||
Other |
3,712 |
13,712 |
23,712 |
23,712 |
|||
Current Liabilities |
(59,884) |
(47,223) |
(48,410) |
(49,666) |
|||
Creditors |
(56,005) |
(43,344) |
(44,531) |
(45,787) |
|||
Short term borrowings |
(3,879) |
(3,879) |
(3,879) |
(3,879) |
|||
Long Term Liabilities |
(83,986) |
(83,986) |
(83,986) |
(83,986) |
|||
Long term borrowings |
(71,884) |
(71,884) |
(71,884) |
(71,884) |
|||
Other long term liabilities |
(12,102) |
(12,102) |
(12,102) |
(12,102) |
|||
Net Assets |
174,411 |
176,281 |
178,983 |
181,633 |
|||
CASH FLOW |
|||||||
Operating Cash Flow |
33,420 |
25,477 |
32,575 |
50,336 |
|||
Net Interest |
(4,546) |
(4,378) |
(4,012) |
(4,116) |
|||
Tax |
(4,695) |
(10,670) |
(11,987) |
(13,034) |
|||
Capex |
(3,369) |
(3,334) |
(3,056) |
(3,032) |
|||
Acquisitions/disposals |
6,576 |
0 |
0 |
0 |
|||
Financing |
756 |
0 |
0 |
0 |
|||
Dividends |
(14,655) |
(20,492) |
(22,769) |
(25,046) |
|||
Net Cash Flow |
13,487 |
(13,397) |
(9,249) |
5,109 |
|||
Opening net debt/(cash) |
78,660 |
69,237 |
82,634 |
91,883 |
|||
HP finance leases initiated |
0 |
0 |
0 |
0 |
|||
Other |
(4,064) |
0 |
0 |
0 |
|||
Closing net debt/(cash) |
69,237 |
82,634 |
91,883 |
86,774 |
|||
Source: Company data, Edison Investment Research
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