Small Caps | Jun 03 2020
This story features EXPERIENCE CO LIMITED. For more info SHARE ANALYSIS: EXP
Experience Co is seeking ways to capitalise more on the re-opening of the domestic tourism market, while remaining confident it can emerge from the crisis without further need for funding.
-Recovery expected with the opening up of state borders
-Heavily reliant on international tourism
-Opportunities may be forthcoming amid lower asset prices
By Eva Brocklehurst
Amid the tales of woe in the tourism sector Experience Co ((EXP)) has highlighted its ability to emerge from the crisis intact. Still, a material decline in earnings is expected compared with pre-pandemic levels and the recovery will be slow.
The company is exploring ways to capitalise on domestic tourism as New Zealand and Australia gradually re-open, and skydiving operations have recommenced in New Zealand, with the Queenstown drop zone open for business.
There are also 3-4 Australian-based drop zones ready to resume business in June. Experiences in Far North Queensland will be activated once volumes can support break-even earnings.
The share price has jumped from its March lows of $0.034 and the company retains $10m in cash and undrawn debt facility of $15m as of April 30. Facility waiver agreements are in place for the June 30, 2020 year end and asset finance lease instalments have been deferred until September 30.
Ord Minnett considers it likely the waivers will be extended. Given the current cash flow profile there appears to be no need for capital and the broker has retained a Buy rating and $0.21 target. Wilsons also assesses that Experience Co has at least two years of cash that should carry it through the current trading conditions.
The business is historically reliant on inbound visitors for 90% of the jumps in New Zealand and 60% in Australia and Ord Minnett includes revised estimates based on the opening up of domestic travel over the next six months and international travel by April/May 2021.
Canaccord Genuity had assumed a six-month complete shutdown of operations back in March but considers the rebound in the share price from its March lows, coinciding with a recovery in market sentiment, is a logical move, allowing for more upbeat assumptions when considering the asset backing of aircraft, vessels and personal protective equipment.
Still, the broker highlights the heavy reliance on international tourism and uncertainty regarding whether that will be replaced by domestic adventurers. The recovery profile should become clearer as the December 2020 and March 2021 quarters will be, as is typical, the periods for strongest demand.
Skydiving and Great Barrier Reef excursions should be sought after and Canaccord Genuity retains a Buy rating and $0.18 target, expecting a full recovery in earnings by FY23.
Wilsons is more inclined to wait for signs of stability in both domestic and global tourism and retains a Market Weight rating and $0.16 target. The broker expects operating earnings (EBITDA) will decline -53.8% in FY20, to $7.1m, and by -95.8% in FY21, to $1m. A marginal profit for skydiving and a small loss for adventure experiences is expected in the second half of FY20.
While the divestment of some non-core assets has been delayed because the pandemic, Wilsons believes this also offers some opportunities, in that Experience Co may want to take advantage of lower asset prices in areas where it would like to gain exposure.
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