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

<h2>Tourism Holdings<br>1H21&nbsp;— Ready for More Action</h2>
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<p><strong>NEUTRAL</strong></p>
<p>We upgrade Tourism Holdings (THL) to NEUTRAL from UNDERPERFORM given the equally balanced risks between recovery potential and opportunities, and further equity dilution from prolonged losses. The company reported a challenged 1H21 result, reliant on domestic only rentals as a result of border closures, partially offset by booming vehicle sales. An underlying post-tax loss of -NZ$2.7m was its first since 1H12. Rental demand has been significantly impacted by border restrictions, particularly in New&nbsp;Zealand, where domestic rentals have historically been a smaller proportion of the customer mix. This will play out to a greater extent in 2H21; we expect losses to deepen further. The strength of vehicle sales have provided THL the relative luxury of a strong balance sheet with negligible net debt at period end and allows scope for reinvestment in fleet ahead of an anticipated recovery, for which THL is well placed.</p>
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<h3>What's changed?&nbsp;</h3>
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<li><strong>Earnings</strong>:&nbsp;Downgrades to forecasts in each outlook year (FY21–FY23) to reflect later start to border re-openings</li>
<li><strong>Target price:</strong>&nbsp;Lifted to NZ$2.50 (from NZ$2.15) as we reincorporate DCF into our valuation approach&nbsp;</li>
<li><strong>Rating</strong>:&nbsp;Upgrade to NEUTRAL from UNDERPERFORM</li>
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<h3>Rental markets subdued; domestic only&nbsp;</h3>
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<p>Rental revenues declined materially&nbsp;in 1H21 as&nbsp;THL is highly leveraged to international visitors. Growth in domestic rentals have helped partially mitigate the lower demand environment, particularly in the US. However, in New&nbsp;Zealand, where reliance on international inbound is highest, the losses stemming from rental operations are most&nbsp;accute. This is unlikely to change unless (1) borders reopen, or (2) THL downsizes its fleet and operational capability further.&nbsp;</p>
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<h3>Vehicle sales will slow through 2H21</h3>
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<p>THL has sold a record number of vehicles in 1H21; its fleet has fallen by -27%. However, this rate of vehicle sales is not sustainable and will slow. Consequently, the profit benefit from gain on vehicle sales will dissipiate and contribute to the worsening losses through 2H21. Gain on sale margins have been solid, reflecting the strong demand environment for used vehicles in each market and could strengthen over the next six months as the number of vehicles on offer decline and sales&nbsp;terms tighten.&nbsp;&nbsp;</p>
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<h3>Action acquisition appeals</h3>
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<p>THL will acquire the remaining 50% in Action Manufacturing, its New Zealand based vehicle manufacturing operation, from JV partner Grant Brady for NZ$9m through a combination of shares and cash. Action Manufacturing is a key part of THL’s build-buy, rent, sell model in New Zealand and Australia, and provides some diversification benefits outside of RVs. This represents a sensible acquisition at a very good price (3x–6x historic PE and below book value). ​​​​​​​</p>
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<div><strong>Andy Bowley</strong></div>
<div><a href="mailto:andy.bowley@forsythbarr.co.nz" target="_blank" rel="noopener">andy.bowley@forsythbarr.co.nz</a></div>
<div>+64 4 495 8246</div>
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<div><strong>Scott Anderson</strong></div>
<div><a href="mailto:scott.anderson@forsythbarr.co.nz" target="_blank" rel="noopener">scott.anderson@forsythbarr.co.<wbr>nz</a></div>
<div>+64 4 914 2219</div>
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Tourism Holdings 1H21&nbsp;— Ready for More Action

NEUTRAL
We upgrade Tourism Holdings (THL) to NEUTRAL from UNDERPERFORM given the equally balanced risks between recovery potential and opportunities, and further equity dilution from prolonged losses. The company reported a challenged 1H21 result, reliant on domestic only rentals as a result of border closures, partially offset by booming vehicle sales. An underlying post-tax loss of -NZ$2.7m was its first since 1H12. Rental demand has been significantly impacted by border restrictions, particularly in New&nbsp;Zealand, where domestic rentals have historically been a smaller proportion of the customer mix. This will play out to a greater extent in 2H21; we expect losses to deepen further. The strength of vehicle sales have provided THL the relative luxury of a strong balance sheet with negligible net debt at period end and allows scope for reinvestment in fleet ahead of an anticipated recovery, for which THL is well placed.


What's changed?&nbsp;



Earnings:&nbsp;Downgrades to forecasts in each outlook year (FY21–FY23) to reflect later start to border re-openings
Target price:&nbsp;Lifted to NZ$2.50 (from NZ$2.15) as we reincorporate DCF into our valuation approach&nbsp;
Rating:&nbsp;Upgrade to NEUTRAL from UNDERPERFORM



Rental markets subdued; domestic only&nbsp;


Rental revenues declined materially&nbsp;in 1H21 as&nbsp;THL is highly leveraged to international visitors. Growth in domestic rentals have helped partially mitigate the lower demand environment, particularly in the US. However, in New&nbsp;Zealand, where reliance on international inbound is highest, the losses stemming from rental operations are most&nbsp;accute. This is unlikely to change unless (1) borders reopen, or (2) THL downsizes its fleet and operational capability further.&nbsp;


Vehicle sales will slow through 2H21


THL has sold a record number of vehicles in 1H21; its fleet has fallen by -27%. However, this rate of vehicle sales is not sustainable and will slow. Consequently, the profit benefit from gain on vehicle sales will dissipiate and contribute to the worsening losses through 2H21. Gain on sale margins have been solid, reflecting the strong demand environment for used vehicles in each market and could strengthen over the next six months as the number of vehicles on offer decline and sales&nbsp;terms tighten.&nbsp;&nbsp;


Action acquisition appeals


THL will acquire the remaining 50% in Action Manufacturing, its New Zealand based vehicle manufacturing operation, from JV partner Grant Brady for NZ$9m through a combination of shares and cash. Action Manufacturing is a key part of THL’s build-buy, rent, sell model in New Zealand and Australia, and provides some diversification benefits outside of RVs. This represents a sensible acquisition at a very good price (3x–6x historic PE and below book value). ​​​​​​​



Andy Bowley
andy.bowley@forsythbarr.co.nz
+64 4 495 8246





Scott Anderson
scott.anderson@forsythbarr.co.nz
+64 4 914 2219



Tourism Holdings: 1H21 — Ready for More Action