Tourism Holdings — Update 23 November 2015

Tourism Holdings — Update 23 November 2015

Tourism Holdings

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Tourism Holdings

FY16 on track

AGM

General industrials

24 November 2015

Price

NZ$2.28

Market cap

NZ$259m

Net debt (NZ$m) at 30 June 2015

69.2

Shares in issue

113.8m

Free float

78%

Code

THL

Primary exchange

NZ

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

3.6

10.7

45.2

Rel (local)

2.0

6.8

37.7

52-week high/low

NZ$2.30

NZ$1.61

Business description

Tourism Holdings listed on the NZX in 1986. It is the largest motorhome rental operator in the world with a fleet of 3,145 motorhomes designed to meet the needs of the free independent traveller (FIT) market.

Next event

H116 results

February 2016

Analysts

Moira Daw

+44 (0)20 3077 5700

Finola Burke

+44 (0)20 3077 5700

Tourism Holdings is a research client of Edison Investment Research Limited

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*
(NZ$m)

EPS*
(c)

DPS
(c)

P/E
(x)

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
cap (m)

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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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

GFT Group — Update 22 November 2015

GFT Group

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