New Zealand Professional Investment Services Firm

Forsyth Barr

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

Research is the cornerstone of our advice. We have one of New Zealand's leading teams of analysts. Our global affiliations ensure comprehensive research coverage of all major investment markets.

New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

Serko Persistent Uncertainties Remain

NEUTRAL
Serko&nbsp;(SKO) materially downgraded its FY22 revenue guidance last week, citing the impact of the Omicron COVID-19 variant on business travel in its key markets, firstly in Europe in late 2021, and more recently in Australia and New Zealand.&nbsp;​​​​SKO's&nbsp;share price has been hit by a combination of 1) a global technology sector de-rating, 2) travel related impacts related to the rise of the Omicron variant, and 3) stock specific disappointment on the speed and potential volume of transactions from the Booking.com contract. SKO also has yet to confirm the proposed acquisition for which it raised capital for in November 2021. We make a material cut to our target price as we take a more pessimistic view of&nbsp;SKO's&nbsp;ability to capture the European SME market, our updated WACC estimate based on a revised risk free rate, and the dilution impact from the recent capital raise. We retain our NEUTRAL rating given the high degree of earnings unpredictability, lack of execution/material cash generation to date, but note the stock does not look overly expensive vs the&nbsp;Nasdaq&nbsp;Emerging Cloud Index.


What's changed?&nbsp;



Revenue:&nbsp;FY22/FY23/FY24 revenue&nbsp;decreased by -15%/-14%/-19% respectively
Target price:&nbsp;Reduced by -NZ$2.21&nbsp;(-27%) to NZ$5.99



FY22 revenue guidance revised downwards due to Omicron impact


SKO downgraded FY22 revenue guidance -16% to between NZ$18m to NZ$20.5m from NZ$21m to NZ$25m, citing the impact of Omicron on business travel demand.​​​​​​​ It has been partially insulated from the&nbsp;impact of the new variant&nbsp;by the&nbsp;normal seasonal reduction in business travel during the December to January holiday period. The upper&nbsp;end of guidance&nbsp;assumes a gradual continuation of improving transaction volumes in all markets, excluding New Zealand, for the remainder of FY22. In contrast,&nbsp;the lower&nbsp;end assumes that volumes in all markets are materially lower than current&nbsp;levels.&nbsp;


We make material cuts to our forecast Booking.com joint venture revenue


We lower our Booking.com for Business joint venture revenue assumptions given the impact of Omicron and the potential risk for future variants to slow the return towards pre-pandemic volumes in Europe. This is in addition to the uncertain future of European corporate travel longer term. The speed and potential volume of transactions in regards to the JV with Booking.com has disappointed the market thus far, although we are sympathetic to the disruption caused by the impact of Omicron. We also make small cuts to our forecast US revenue assumptions following recent conversations with channel checks and industry contracts, which has suggested that SKO has made limited progress in the US over the past 12 months. We note the lack of any company update in regards to the proposed US corporate contract win in the recent release last week.&nbsp;


Serko Ltd

Serko: Persistent Uncertainties Remain