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>Approval From&nbsp;Gods Needed to Marry Apollo&nbsp;</h2>
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<p><strong>OUTPERFORM</strong></p>
<p>Tourism Holdings (THL) is to acquire its closest competitor, Australian listed Apollo Tourism &amp; Leisure (<a href="http://atl.ax/" target="_blank" data-saferedirecturl="https://www.google.com/url?q=http://ATL.AX&amp;source=gmail&amp;ust=1639443839592000&amp;usg=AOvVaw1aLbp-kPfeBiHIzTKRENks" rel="noopener">ATL.AX</a>), in an industry reshaping all-scrip deal. The deal is very attractive for both financial and strategic reasons. THL will pay ~NZ$143m (based on previous close price) for ATL and will inherit&nbsp; ~NZ$182m of net debt. We estimate the deal could add at least ~75c value per share and is +25% EPS accretive based on FY19 adjusted earnings. RV rental market consolidation in both Australia and New Zealand will provide fleet utilisation benefits and further lift industry profit pools. However, the deal is subject to competition agency clearance in both New Zealand and Australia, which shouldn't be seen as a foregone conclusion given the wide range of potential market definition outcomes.&nbsp; We retain an OUTPERFORM rating.&nbsp;</p>
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<h3>What's changed?&nbsp;</h3>
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<li><strong>Target price</strong>:&nbsp;Lifted by +50c to NZ$3.60 to reflect deal value uplift discounted by assumed deal probability (~70%).&nbsp;</li>
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<h3>Financially attractive&nbsp;</h3>
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<p>THL has demonstrated over the long term a&nbsp;rational approach to value management and creation, further evidenced&nbsp;in this transaction. Despite paying&nbsp;a +32% premium to the previous ATL share price close, we see scope for significant value upside&nbsp;stemming&nbsp;from a combination of: (1) earnings accretion, (2) cost synergy realisation, the majority of which relate to fixed costs, (3) better capital efficiency with a lower combined vehicle fleet, and (4) book value uplifts to THL rental fleet, Canadian properties and its stake in ASX listed RV peer-to-peer rental player,&nbsp;Camplify&nbsp;(<a href="http://chl.ax/" target="_blank" data-saferedirecturl="https://www.google.com/url?q=http://CHL.AX&amp;source=gmail&amp;ust=1639443839592000&amp;usg=AOvVaw3eeBHRVpeNxqSkc_Wvnayg" rel="noopener">CHL.AX</a>).&nbsp;</p>
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<h3>Strategically sensible</h3>
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<p>We expect that ATL has been at the top of THL's strategic hit-list for many years. The deal offers significant strategic value: (1) RV rental market consolidation in New Zealand and Australia with #1 and #2 players combining in both markets, (2) enhanced geographic diversification with THL becoming less reliant on NZ, (3) expansion into the Canadian RV rental market, and (4) additional fleet procurement below market value during a period of COVID-19 impacted supply chain challenges.&nbsp;</p>
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<h3>Anti-trust not a foregone conclusion&nbsp;</h3>
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<p>THL has submitted its applications to both the Commerce Commission and Australia's ACCC for deal clearance. Ultimately, clearance will depend on market definition, in our opinion. In the pure-play traditional corporate RV rental market, pre COVID-19 market share for a combined THL and ATL was &gt;50% in New Zealand and &gt;60% in Australia. However, we are cognisant that the peer-to-peer sector has grown rapidly in recent years, thereby, expanding the&nbsp;wider RV rentals market, and both THL and ATL have downsized their respective fleets aggressively as a result of COVID-19. We expect THL to get clearance&nbsp;but it's not a foregone conclusion.&nbsp;</p>
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Tourism Holdings Approval From&nbsp;Gods Needed to Marry Apollo&nbsp;

OUTPERFORM
Tourism Holdings (THL) is to acquire its closest competitor, Australian listed Apollo Tourism &amp; Leisure (ATL.AX), in an industry reshaping all-scrip deal. The deal is very attractive for both financial and strategic reasons. THL will pay ~NZ$143m (based on previous close price) for ATL and will inherit&nbsp; ~NZ$182m of net debt. We estimate the deal could add at least ~75c value per share and is +25% EPS accretive based on FY19 adjusted earnings. RV rental market consolidation in both Australia and New Zealand will provide fleet utilisation benefits and further lift industry profit pools. However, the deal is subject to competition agency clearance in both New Zealand and Australia, which shouldn't be seen as a foregone conclusion given the wide range of potential market definition outcomes.&nbsp; We retain an OUTPERFORM rating.&nbsp;


What's changed?&nbsp;



Target price:&nbsp;Lifted by +50c to NZ$3.60 to reflect deal value uplift discounted by assumed deal probability (~70%).&nbsp;



Financially attractive&nbsp;


THL has demonstrated over the long term a&nbsp;rational approach to value management and creation, further evidenced&nbsp;in this transaction. Despite paying&nbsp;a +32% premium to the previous ATL share price close, we see scope for significant value upside&nbsp;stemming&nbsp;from a combination of: (1) earnings accretion, (2) cost synergy realisation, the majority of which relate to fixed costs, (3) better capital efficiency with a lower combined vehicle fleet, and (4) book value uplifts to THL rental fleet, Canadian properties and its stake in ASX listed RV peer-to-peer rental player,&nbsp;Camplify&nbsp;(CHL.AX).&nbsp;


Strategically sensible


We expect that ATL has been at the top of THL's strategic hit-list for many years. The deal offers significant strategic value: (1) RV rental market consolidation in New Zealand and Australia with #1 and #2 players combining in both markets, (2) enhanced geographic diversification with THL becoming less reliant on NZ, (3) expansion into the Canadian RV rental market, and (4) additional fleet procurement below market value during a period of COVID-19 impacted supply chain challenges.&nbsp;


Anti-trust not a foregone conclusion&nbsp;


THL has submitted its applications to both the Commerce Commission and Australia's ACCC for deal clearance. Ultimately, clearance will depend on market definition, in our opinion. In the pure-play traditional corporate RV rental market, pre COVID-19 market share for a combined THL and ATL was &gt;50% in New Zealand and &gt;60% in Australia. However, we are cognisant that the peer-to-peer sector has grown rapidly in recent years, thereby, expanding the&nbsp;wider RV rentals market, and both THL and ATL have downsized their respective fleets aggressively as a result of COVID-19. We expect THL to get clearance&nbsp;but it's not a foregone conclusion.&nbsp;


Tourism Holdings: Approval From Gods Needed to Marry Apollo