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</h2>
Tourism Temporarily Totalled; Downgrade to UNDERPERFORM
UNDERPERFORM
We lower our rating on Tourism Holdings (THL) from NEUTRAL to UNDERPERFORM in light of the heightened restrictions on air travel for arrivals into New Zealand and Australia, and the US's decision to restrict European travellers from entering the US. THL's near term demand outlook for all parts of its business will be severely dented as a result. THL has already suspended its earnings guidance for FY20. Notwithstanding an otherwise healthy balance sheet, given the capital raise last year, we expect it to come under duress over the coming months with reduced revenue to offset the company's fixed cost base. Fortunately, the bulk of the New Zealand RV rental peak season has been banked for FY20, however, the upcoming peaks for the US and Queensland markets are at risk, and extreme uncertainty will have an impact on forward bookings for the 2020–21 summer peak seasons in New Zealand and Australia. We now forecast THL to make a loss in FY21, albeit our estimates encompass a wide margin for error. We lower our target price to NZ$1.50 (from NZ$2.05) to reflect our net tangible assets (NTA) valuation adjusted for cash losses over the next 12 months.&nbsp;&nbsp;
<table class="table table-striped"><colgroup><col> <col> <col> <col> <col> <col> <col span="2"> <col span="2"> <col> <col></colgroup>
<tbody>
<tr>
<td style="width: 48pt;">NZX Code</td>
<td style="width: 48pt;">THL</td>
<td style="width: 48pt;">Financials:Jun/</td>
<td style="width: 40.2pt;">19A</td>
<td style="width: 42.6pt;">20E</td>
<td style="width: 43.2pt;">21E</td>
<td style="width: 48pt;">22E</td>
<td style="width: 48pt;">Valuation (x)</td>
<td style="width: 42.6pt;">19A</td>
<td style="width: 42.6pt;">20E</td>
<td style="width: 48pt;">21E</td>
<td style="width: 42.6pt;">22E</td>
</tr>
<tr>
<td style="width: 48pt;">Share price</td>
<td style="width: 48pt;">NZ$1.95</td>
<td style="width: 48pt;">NPAT* (NZ$m)</td>
<td style="text-align: left; width: 40.2pt;">27.9&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">7.2</td>
<td style="text-align: left; width: 43.2pt;">-21.5&nbsp;</td>
<td style="text-align: left; width: 48pt;">41.7&nbsp;</td>
<td style="width: 48pt;">EV/EBITDA</td>
<td style="text-align: left; width: 42.6pt;">4.2&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">4.7</td>
<td style="text-align: left; width: 48pt;">8.9&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">3.3&nbsp;</td>
</tr>
<tr>
<td style="width: 48pt;">Target price</td>
<td style="width: 48pt;">NZ$1.50</td>
<td style="width: 48pt;">EPS* (NZc)</td>
<td style="text-align: left; width: 40.2pt;">22.2&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">4.8&nbsp;</td>
<td style="text-align: left; width: 43.2pt;">-14.2&nbsp;</td>
<td style="text-align: left; width: 48pt;">27.1&nbsp;</td>
<td style="width: 48pt;">EV/EBIT</td>
<td style="text-align: left; width: 42.6pt;">7.8&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">13.2&nbsp;</td>
<td style="text-align: left; width: 48pt;">n/a</td>
<td style="text-align: left; width: 42.6pt;">6.1&nbsp;</td>
</tr>
<tr>
<td style="width: 48pt;">Risk rating</td>
<td style="width: 48pt;">High</td>
<td style="width: 48pt;">EPS growth* (%)</td>
<td style="text-align: left; width: 40.2pt;">-28.3</td>
<td style="text-align: left; width: 42.6pt;">-78.2</td>
<td style="text-align: left; width: 43.2pt;">n/a</td>
<td style="text-align: left; width: 48pt;">n/a</td>
<td style="width: 48pt;">PE</td>
<td style="text-align: left; width: 42.6pt;">8.8&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">40.4&nbsp;</td>
<td style="text-align: left; width: 48pt;">n/a</td>
<td style="text-align: left; width: 42.6pt;">7.2&nbsp;</td>
</tr>
<tr>
<td style="width: 48pt;">Issued shares</td>
<td style="width: 48pt;">147.1m</td>
<td style="width: 48pt;">DPS (NZc)</td>
<td style="text-align: left; width: 40.2pt;">27.0&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">10.0&nbsp;</td>
<td style="text-align: left; width: 43.2pt;">0.0&nbsp;</td>
<td style="text-align: left; width: 48pt;">20.0&nbsp;</td>
<td style="width: 48pt;">Price/NTA</td>
<td style="text-align: left; width: 42.6pt;">1.1</td>
<td style="text-align: left; width: 42.6pt;">1.3&nbsp;</td>
<td style="text-align: left; width: 48pt;">1.5&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">1.4&nbsp;</td>
</tr>
<tr>
<td style="width: 48pt;">Market cap</td>
<td style="width: 48pt;">NZ$287m</td>
<td style="width: 48pt;">Imputation (%)</td>
<td style="text-align: left; width: 40.2pt;">76</td>
<td style="text-align: left; width: 42.6pt;">50</td>
<td style="text-align: left; width: 43.2pt;">50</td>
<td style="text-align: left; width: 48pt;">50</td>
<td style="width: 48pt;">Cash div yld (%)</td>
<td style="text-align: left; width: 42.6pt;">13.8</td>
<td style="text-align: left; width: 42.6pt;">5.1&nbsp;</td>
<td style="text-align: left; width: 48pt;">0.0&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">10.3&nbsp;</td>
</tr>
<tr>
<td style="width: 48pt;">Avg daily turnover</td>
<td style="width: 48pt;">154.4k (NZ$548k)</td>
<td colspan="3" style="width: 130.8pt;">*Based on normalised profits</td>
<td style="width: 43.2pt;"></td>
<td style="width: 48pt;"></td>
<td style="width: 48pt;">Gross div yld (%)</td>
<td style="text-align: left; width: 42.6pt;">17.9</td>
<td style="text-align: left; width: 42.6pt;">6.1</td>
<td style="text-align: left; width: 48pt;">0.0&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">12.3&nbsp;</td>
</tr>
</tbody>
</table>
What's changed?​​​​​​​​​​​
<ul type="disc">
<li>Rating: Downgraded to UNDERPERFORM from NEUTRAL</li>
<li>Earnings: Material reductions in FY20 and FY21</li>
<li>Target price: Lowered to NZ$1.35 from NZ$2.05</li>
</ul>
RV rental demand to fall materially&nbsp;
The reduced demand for tourist travel and likely substantial reductions in airline capacity will severely impact on&nbsp;THL's&nbsp;various business, albeit to varying degrees given their seasonality. We expect sharply lower utilisation rates for RV rentals for the remainder of calendar 2020 and lower forward bookings for the next NZ&nbsp;and Australian peak summer season.&nbsp;
Balance sheet can absorb a meaningful downturn&nbsp;
While&nbsp;THL's&nbsp;balance sheet has capacity (at least NZ$80m) to absorb a meaningful downturn, assisted by the capital raise last year and existing vehicle asset backing, the likely suspension of its dividend, potential reduction in&nbsp;vehicle purchases, or&nbsp;a full or partial divestment of its 50% stake in&nbsp;tech&nbsp;JV Togo, we don't rule out a further capital raise.&nbsp;We assume that&nbsp;THL's&nbsp;vehicle sales markets are unchanged by the COVID-19 outbreak, albeit should economic recession take hold, then this may prove to be optimistic.&nbsp;
NTA&nbsp;under pressure from cash losses
We calculate&nbsp;THL's&nbsp;adjusted&nbsp;NTA&nbsp;at FY19 as NZ$2.05 per share. However, the likely cash losses that will be incurred over the next 12 months&nbsp;will lower this to&nbsp;~NZ$1.50 on our estimates.&nbsp;
Andy Bowley andy.bowley@forsythbarr.co.nz +64 4 495 8246

Tourism Holdings
Tourism Temporarily Totalled; Downgrade to UNDERPERFORM
UNDERPERFORM
We lower our rating on Tourism Holdings (THL) from NEUTRAL to UNDERPERFORM in light of the heightened restrictions on air travel for arrivals into New Zealand and Australia, and the US's decision to restrict European travellers from entering the US. THL's near term demand outlook for all parts of its business will be severely dented as a result. THL has already suspended its earnings guidance for FY20. Notwithstanding an otherwise healthy balance sheet, given the capital raise last year, we expect it to come under duress over the coming months with reduced revenue to offset the company's fixed cost base. Fortunately, the bulk of the New Zealand RV rental peak season has been banked for FY20, however, the upcoming peaks for the US and Queensland markets are at risk, and extreme uncertainty will have an impact on forward bookings for the 2020–21 summer peak seasons in New Zealand and Australia. We now forecast THL to make a loss in FY21, albeit our estimates encompass a wide margin for error. We lower our target price to NZ$1.50 (from NZ$2.05) to reflect our net tangible assets (NTA) valuation adjusted for cash losses over the next 12 months.&nbsp;&nbsp;
         


NZX Code
THL
Financials:Jun/
19A
20E
21E
22E
Valuation (x)
19A
20E
21E
22E


Share price
NZ$1.95
NPAT* (NZ$m)
27.9&nbsp;
7.2
-21.5&nbsp;
41.7&nbsp;
EV/EBITDA
4.2&nbsp;
4.7
8.9&nbsp;
3.3&nbsp;


Target price
NZ$1.50
EPS* (NZc)
22.2&nbsp;
4.8&nbsp;
-14.2&nbsp;
27.1&nbsp;
EV/EBIT
7.8&nbsp;
13.2&nbsp;
n/a
6.1&nbsp;


Risk rating
High
EPS growth* (%)
-28.3
-78.2
n/a
n/a
PE
8.8&nbsp;
40.4&nbsp;
n/a
7.2&nbsp;


Issued shares
147.1m
DPS (NZc)
27.0&nbsp;
10.0&nbsp;
0.0&nbsp;
20.0&nbsp;
Price/NTA
1.1
1.3&nbsp;
1.5&nbsp;
1.4&nbsp;


Market cap
NZ$287m
Imputation (%)
76
50
50
50
Cash div yld (%)
13.8
5.1&nbsp;
0.0&nbsp;
10.3&nbsp;


Avg daily turnover
154.4k (NZ$548k)
*Based on normalised profits


Gross div yld (%)
17.9
6.1
0.0&nbsp;
12.3&nbsp;



What's changed?​​​​​​​​​​​

Rating: Downgraded to UNDERPERFORM from NEUTRAL
Earnings: Material reductions in FY20 and FY21
Target price: Lowered to NZ$1.35 from NZ$2.05

RV rental demand to fall materially&nbsp;
The reduced demand for tourist travel and likely substantial reductions in airline capacity will severely impact on&nbsp;THL's&nbsp;various business, albeit to varying degrees given their seasonality. We expect sharply lower utilisation rates for RV rentals for the remainder of calendar 2020 and lower forward bookings for the next NZ&nbsp;and Australian peak summer season.&nbsp;
Balance sheet can absorb a meaningful downturn&nbsp;
While&nbsp;THL's&nbsp;balance sheet has capacity (at least NZ$80m) to absorb a meaningful downturn, assisted by the capital raise last year and existing vehicle asset backing, the likely suspension of its dividend, potential reduction in&nbsp;vehicle purchases, or&nbsp;a full or partial divestment of its 50% stake in&nbsp;tech&nbsp;JV Togo, we don't rule out a further capital raise.&nbsp;We assume that&nbsp;THL's&nbsp;vehicle sales markets are unchanged by the COVID-19 outbreak, albeit should economic recession take hold, then this may prove to be optimistic.&nbsp;
NTA&nbsp;under pressure from cash losses
We calculate&nbsp;THL's&nbsp;adjusted&nbsp;NTA&nbsp;at FY19 as NZ$2.05 per share. However, the likely cash losses that will be incurred over the next 12 months&nbsp;will lower this to&nbsp;~NZ$1.50 on our estimates.&nbsp;
Andy Bowley andy.bowley@forsythbarr.co.nz +64 4 495 8246


Tourism Holdings: Tourism Temporarily Totalled; Downgrade to UNDERPERFORM