Forsyth Barr says Tourism Holdings faces bumpy journey to recovery

Tourism Holdings (THL) profit downgrade late last year capped a disastrous year for tourism-related companies and THL faces uncertain demand in New Zealand, say analysts at Forsyth Barr.

They say that with lower rental demand during the summer peak and fewer vehicle sales than anticipated in New Zealand, the net profit loss in the full year ending June 30 could be as high as $22.4 million. This is a sharp reversal on the $20m profit reported for the 2019-20 financial year.

”The balance sheet remains strong with significant capacity to deploy capital when travel markets recover. However, we caution that this is likely to be a lengthy and non-linear profile,” say Andy Bowley and Scott Anderson.

The company assumes that borders will remain closed until the end of the current financial year.

THL also has operations in Australia and the United States, markets in which it believes it can be earnings positive, especially in the US.

”New Zealand, in contrast, is far more reliant on international visitors, and will likely remain loss-making in order to be optimally positioned for a recovery. At a group level, we expect losses to continue until borders reopen.’

The analysts say the demand profile was uncertain and they expect a clunky approach to border reopening.

While the company was better positioned relative to competitors given its sales channels reach, balance sheet strength, and younger average fleet age, it was expected rental markets will take time to settle down and fleet reinvestment will be inhibited by potential access problems to new vehicles/chassis given global supply chain challenges.

”Moreover, vehicle sales will fall from current elevated levels.”

”In light of the inherent difficulty in deriving earnings forecasts for THL currently, we believe the only appropriate basis for valuation is book value. Our estimate for THL’s book value as at FY21 falls from around $2.05 to around $2.00 as a result of this downgrade.”

In an NZX announcement on December 23, the company said while it was not able to provide a ”credible” forecast for the full year, the loss was expected to be greater than the average projected by market analysts.

Last year an average net loss after tax of $12.8 million was forecast between Carter Bar, Ord Minnett, Jarden and Forsyth Barr

The company will release its half-year results on February 26 where the company will release a more comprehensive update on its outlook.

Struggle ahead for the travel industry is reflected in the latest data from the International Air Transport Association which says the next six months will be difficult for airlines but they could return to being cash positive by the end of the year.

Around the world in November international capacity was down 88 per cent on a year earlier and because of the Covid-19 resurgence domestic recovery stopped abruptly at 41 per cent of 12 months before.

Forward bookings are down 80 per cent on a year earlier.

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