THL travelling well after dismal low of 2009

Tourism Holdings is being praised for hitting targets during five years of restructuring,...
Tourism Holdings is being praised for hitting targets during five years of restructuring, acquisitions and growth; pictured, a Maui camper van crosses the Deadman’s Point bridge over Lake Dunstan at Cromwell. Photo: Supplied
From underachiever to overachiever, Tourism Holdings has rallied its operations in recent years. Simon Hartley talks to brokers Suzanne Kinnaird from Forsyth Barr and Peter McIntyre from Craigs Investment Partners on the turnaround in its fortunes during the past five years.

Camper van and tourism operator Tourism Holdings this week reiterated its target financial guidance of hitting $50 million profit by 2020, but has thrown out a caution on the effects of global volatility.

Gross capital expenditure in the year ahead is also set to hit almost $200 million, to a backdrop of debt levels of more than $170 million.

The company has come a long way, from July 2009,  when its share price was languishing at 41c as it  struggled with post Global Financial Crisis fallout.  This week it was trading around $4.80.

The company  clawed its way back into the black for the year ended June 2012, when operating profit recovered to levels not seen since before the Global Financial Crisis in 2007-08.

The company recorded an after-tax profit of $4.3 million, a turnaround from the previous year’s $27.3 million loss, which included a non-cash goodwill write-down of $26.1 million.

Another measure of its success during the turnaround of the past five years was THL chairman Rob Campbell noting this week that had an investor repeatedly reinvested their dividends over that period, they would have gleaned a 1000% return.

"It’s not lost on me that you can comment on how low the Tourism Holdings price was five years ago as a negative; however, I choose to reflect on the positive approach the team have taken to creating a business that is more flexible, global and disciplined," he told shareholders at its annual meeting this week. 

The company had achieved its full year 2019 target of achieving a $30million profit two years early, and remained focused on the earlier stated goal of reaching $50million profit by 2020, he said. Guidance of 2018 profit remained at between $36 million and $39 million.

While Tourism Holdings delivered a record $30.2 million profit for its last year to June, just last week Forsyth Barr broker Suzanne Kinnaird downgraded the stellar stock on expectation of slowing growth.

"Its New Zealand rentals continue to be a key driver, with a strong forward book, supported by ‘on track’ El Monte [US] synergies.

"But it was held back by a decline in profits at Tourism group [Waitomo Caves and Kiwi Experience] and also adverse currency translation through the US peak season," Mrs Kinnaird said.

Craigs Investment Partners broker Peter McIntyre said the company’s turnaround was down to several factors, including a restructuring, simplified operations, strategic offshore camper van acquisitions and management change, including strong leadership by chief executive Grant Webster.

"They’ve also benefited from Tourism New Zealand marketing and promotions and the increase in international visitors from more airlines arriving here."

From an investment point of view, the company had successfully moved away from giving "little or no guidance" to giving good guidance and actually meeting, or bettering, expectations.

"That gives investors more confidence that Tourism Holdings can actually hit its targets," he said.

Also working in the company’s favour was the relative lack of tourism-related stocks on the NZX, in a period in which tourism was the country’s second-biggest earner.

Mrs Kinnaird said Tourism Holdings’s positive earnings outlook was now reflected in its elevated valuation, prompting the retention of a "neutral" rating. She said THL was in the process of executing a "value accretive strategy", with its rising return on capital being driven by better capital deployment, a more competitive cost base and favourable industry growth trends.

"While still susceptible to external tourism shocks, we think the company can better manage these now than in the past," she said.

One headwind was a potential one-off tax expense mentioned by management during 2018, which Mrs Kinnaird said was unknown, but expected to be less than $3 million.

She forecast THL would deliver "modestly above" its own guidance of an after-tax profit for 2018 in the $36million-$39million range.

Mr Campbell said "We will not continue to generate shareholder returns at the rate of increase in recent years, but we are not at a plateau — nor do I accept that this is just the boom period of a repeated historical pattern, as has recently been suggested."

Mr Campbell said THL would continue building a diversity of earnings, it had a clear strategy for its role in the "global RV ecosystem",  tight discipline on capital allocation and "strong" execution capability. However, he  noted THL was operating in a period of significant political, technological and social change on a global basis.

During the past year had been some impact on youth travel from Brexit, as the British pound devalued, there had been a reduction in visitor arrivals to the US from Europe, following Donald Trump’s election as  president, and there had been some instability in Japan and South Korean outbound visitor markets, with the uncertainties of North Korea.

"They are all changing the ways that people think about holiday experiences, which are at the core of our business," Mr Campbell said.

THL chief executive Grant Webster said the year had two results highlights, being the New Zealand rentals business increasing earnings before interest and tax by 50%, and the acquisition of US camper van company El Monte.

"We do see ongoing growth in the New Zealand rentals business. However, we also want to keep focused on market share and we will limit the growth of margin in the coming year, as we more aggressively target share and volume," Mr Webster said.

Net debt at the end of the year had risen from $79 million to $176 million, and while the balance sheet was a "critical focus", Mr Webster was "confident in our current position".

In  the year ahead, THL expected gross capital expenditure close to $200million.

Mr Webster said part of the rental fleet would be sold during the next 12 to 14 months and THL had the ability to control debt, when required, by creating "significant operating cashflow" through the ongoing rental operations and sale of vehicles without replacing them.

"We know tourism businesses have shock events and we know we need to be prudent with your shareholder funds," Mr Webster said.

He had "high expectations" of the two digital touring app services, Roadtrippers in the US and CamperMate in New Zealand and Australia, bought  by THL, as "critical components" of the self-drive experience, he said.

• Chinese investment manager Citic Capital, which oversees $US21 billion ($NZ30 billion) of assets, has built up a 7.3% stake in Tourism Holdings, making it the motorhome operator’s second-biggest shareholder. Milford Asset Management is the company’s biggest shareholder with  11%. Citic built up the Tourism Holdings stake between September 11 and October 16, buying 8.7 million shares for $42.2 million at an average price of about $4.82 a share.

It has issued a further 142,000 shares under the dividend reinvestment plan for an aggregate $680,000.

— BusinessDesk

simon.hartley@odt.co.nz 

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