Tag Archives: Leisure & Tourism

article 3 months old

Opportunity Presenting In Mantra

By Michael Gable 

Last weekend, we saw some interesting statistics come out of China, our largest trading partner and second largest economy on the planet. Fixed asset investment grew 10.9% in the first eight months of the year, the slowest since 2000. Because markets are in “negative mode” its another “reason” why China is in trouble. As we have touched on previously, China is moving from an investment-led economy to one of consumption. The other statistic released on the weekend was Chinese retail sales in August. It showed growth of 10.8% which is the fastest pace this year. So while the western media is worried about the Chinese market, the Chinese themselves are confident enough to go out and spend their money at the fastest pace all year.

This means that there are opportunities out there and we just need to switch from “negative mode” back to one of optimism in order to see share prices start to head higher. It will likely take a few more weeks until the market goes back to climbing the wall of worry but with a change of Prime Minister we may see some confidence come back in to the market. We also cannot forget the US Federal Reserve possibly raising rates from nothing to “nothing plus a little bit”. We quietly think that even a rate rise this week can see the market stage a relief rally but we don’t have a crystal ball so we’ll have to wait until the event to see if the market wants to get cheaper or not. All we can do is continue uncovering great opportunities down at these levels. This week it is Mantra Group ((MTR)).
 


MTR has trended higher since listing, with the peak occurring in May this year. Since that peak, the stock has eased back but visually, we can see that this is fairly flat compared to the overall uptrend, which is a positive sign. It has formed a double bottom (indicated by the arrows) which is a bullish sign when you see that within an overall uptrend. Whilst the chart is generally looking bullish in the medium to longer term, in terms of a buying opportunity, it would be safer to wait for it to breach this little downtrend line that was created since the May peak.


Content included in this article is not by association the view of FNArena (see our disclaimer).
 
Michael Gable is managing Director of  Fairmont Equities (www.fairmontequities.com)

Michael assists investors to achieve their goals by providing advice ranging from short term trading to longer term portfolio management, deals in all ASX listed securities and specialises in covered call writing to help long term investors protect their share portfolios and generate additional income.

Michael is RG146 Accredited and holds the following formal qualifications:

• Bachelor of Engineering, Hons. (University of Sydney) 
• Bachelor of Commerce (University of Sydney) 
• Diploma of Mortgage Lending (Finsia) 
• Diploma of Financial Services [Financial Planning] (Finsia) 
• Completion of ASX Accredited Derivatives Adviser Levels 1 & 2

Disclaimer

Michael Gable is an Authorised Representative (No. 376892) and Fairmont Equities Pty Ltd is a Corporate Authorised Representative (No. 444397) of Novus Capital Limited (AFS Licence No. 238168). The information contained in this report is general information only and is copy write to Fairmont Equities. Fairmont Equities reserves all intellectual property rights. This report should not be interpreted as one that provides personal financial or investment advice. Any examples presented are for illustration purposes only. Past performance is not a reliable indicator of future performance. No person, persons or organisation should invest monies or take action on the reliance of the material contained in this report, but instead should satisfy themselves independently (whether by expert advice or others) of the appropriateness of any such action. Fairmont Equities, it directors and/or officers accept no responsibility for the accuracy, completeness or timeliness of the information contained in the report.

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article 3 months old

Mantra Group Comfortably Placed For Growth

-Leisure demand increasing
-Corporate recovery expected
-Is the stock overpriced?
 

By Eva Brocklehurst

Occupancy in Australia's tourist resorts continues to improve, benefitting from both local and international demand on the back of a weaker Australian dollar. Mantra Group ((MTR)) is well situated in this regard, having added 11 properties to its portfolio over FY15 with a further five in July. The company expects 14 properties to be added in FY16.

Rates and occupancy in the CBD division were flat so underlying growth was fairly weak in FY15. Irrespective of this observation, most brokers are upbeat about the outlook. Weakness in Darwin, Brisbane and Perth may drag on FY16 but UBS believes the portfolio is well able to compensate for this, with momentum in Far North Queensland, Gold Coast, Sunshine Coast, Sydney and Melbourne. The balance sheet is also robust and interest cover at comfortable levels.

The share price has eased since early June and UBS finds the valuation now more compelling. Any further depreciation in the Australian dollar will be supportive. UBS upgrades to Buy from Neutral.

Regardless, this is not enough for Moelis, in terms of the stock's premium multiple to the market, particularly when growth is linked to acquisitions in a competitive environment. A meaningful improvement in CBD rates is required before the broker becomes more positive. Moelis, not one of the eight brokers monitored daily on the FNArena database, maintains a Sell rating with a $3.29 target.

The outlook bodes well for a hotel and resort operator, in Morgans' view, with a recovering corporate market and strong inbound and domestic leisure demand. Earnings growth in FY15 reflected increased occupancy, strong growth in online bookings, contributions from new properties and cost control. The broker is attracted to the quality of the diverse portfolio but, as the stock is trading on an FY16 price/earnings ratio of 20.3, a Hold rating is retained.

Credit Suisse concedes the stock is not cheap. Nevertheless, because revenue tailwinds are strengthening and the acquisition pipeline is significant, with an under geared balance sheet, the broker remains happy with an Outperform rating. Early FY16 guidance for 15-19% growth in earnings comes despite headwinds in the Northern Territory and the cycling of some one-off CBD work in Brisbane.

Macquarie agrees the company is in an enviable position, highlighting a buoyant market. Even the CBD market is considered to be tracking well despite the relatively lacklustre corporate sector. The broker envisages upside to forecasts, without a further boost from new properties. Deutsche Bank is of a similar view and retains a Buy rating predicated on the organic growth profile and exposure to positive industry dynamics.

Bell Potter considers the outlook sound. The company has signalled an improvement in occupancy levels in the CBD, particularly in Melbourne. New supply is short and the broker expects this trend to affect occupancy levels in both Sydney and Melbourne.

The portfolio remains exposed to the strong growth in visitors from China and Bell Potter expects this will address the supply excess over and above domestic consumption. Meanwhile, domestic leisure is improving, with increased demand assisted by low-cost airline capacity into Queensland. Bell Potter, not one of the eight brokers monitored daily on the FNArena database, sticks with a Buy rating and $4.10 target.

The database contains four Buy ratings and one Hold (Morgans). The consensus target is $3.83, suggesting 15.6% upside to the last share price. Targets range from $3.55 to $4.10.
 

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Sun Shines On Corporate Travel

-Winning market share
-Consolidation opportunities
-Mining sector the weak link
 

By Eva Brocklehurst

Corporate Travel Management ((CTD)) is in a sweet spot, substantially expanding its offshore platform to deliver growth that was above expectations in FY15. Having built a global network the business is now poised to win larger clients.

The company's results illustrate success in wining market share from both global travel management companies and boutique operators, Macquarie observes. The broker expects the business to benefit from favourable currency moves and exposure to an eventual recovery in the global economy.

For Macquarie, the main issue is valuation rather than the outlook. In that regard the broker retains a Neutral rating with an $11.77 target, with the majority of the growth outlook considered to be captured in the share price. Nevertheless, with the significant market that is available globally, the company's growth outlook is one of the strongest in the broker's emerging leaders portfolio.

Guidance for FY16 signals earnings growth of 25-30%, taking into account conservative currency assumptions and the annualised contribution of Chambers Travel as well as the full year contribution of Avia International and Diplomat Travel. More than 52% of earnings came from offshore in FY15 and organic growth contributed more than half.

Morgans forecasts earnings growth of 30% in FY16 and also believes the company is positioned to benefit from consolidation in large global corporate travel markets as well as win regional and global travel accounts. Retention of existing clients remains strong.

There is also an opportunity to cross-sell to clients between different regions. In this regard the broker highlights the joint venture with World99, an outbound travel agent in China. This JV will have the distribution rights for Corporate Travel's products outside China. The work is high volume but lower margin.

Over time, Morgans believes there is an opportunity to build on this venture within other geographies. On another positive, the JV requires minimal capital investment as it leverages the company's existing technology. Morgans' Add rating is reiterated, with a $13.20 target.

Ord Minnett envisages scale benefits will enable revenue margins and earnings to grow rapidly. The company is still a small operator in the Asian, North American and European corporate travel markets but the broker is more confident in the earnings base since the results and upgrades to Buy from Hold, setting a target of $10.67.

Despite the tough operating conditions in Australasia the company has improved market share to 12%, which signals to Bell Potter that Corporate Travel is outperforming its peers. Profit growth in this region is expected to slow to single digits, given the weakening mining sector. Management expects Australia will reveal a flat first half with growth returning in the second half.

Still, with integration of the North American businesses largely complete and Asia and Europe performing above expectations, Bell Potter believes the strong track record that is being established will continue to underpin the stock in FY16. The broker has a Buy rating and $13.25 target.
 

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Weekly Broker Wrap: Trends, Tourism, TV, Clothes, China Steel And A-REITs

-New confidence in tourism, farming
-AFL deal has downside for SWM
-Summer less bright for clothiers
-China facing steel overcapacity
 

By Eva Brocklehurst

Corporate Trends

Analysts at ANZ Bank have recently held meetings with corporates across the country and found certain themes are being widely discussed. The lower Australian dollar is clearly supporting non-resource exports while importers are struggling to pass on costs.

Discussions with the agricultural sector were uniformly positive, supported by the lower Australian dollar and higher prices. Offshore demand appears mixed, with grain traders reporting strong demand but meat and dairy facing difficulties with contract enforcement.

There was a clear divergence in views between the mining states and the industrial states. The analysts found conditions in Victoria positive while South Australia was more sombre. The property market remains patchy across the states. Feedback suggests activity continues to be concentrated in the major capitals while the regions remain lacklustre.

Concerns were raised about the implications of a slowing of growth in China on foreign investor demand for new housing. A view also emerged among Victorians that property market conditions were more sustainable than in Sydney.

The implications for gas prices from the burgeoning LNG export industry was also a key point of conjecture. A combination of international pricing, demand from projects and high development costs are expected to push domestic gas prices substantially higher.

Tourism

While the mining industry investment boom is ending, Australia's tourism industry is benefitting from a lower currency. Trends in the data show arrivals have lifted and the monthly tourism trade balance is in positive territory. The national accounts signal that as the Australian dollar has headed lower, spending on hotels, restaurants and cafes has lifted considerably, particularly in Queensland.

Commonwealth Bank analysts welcome the decline in the Australian currency for those sectors with a high export propensity such as tourism and expect the trend to continue. Tourists from Asia and China in particular are the major growth area. In 2014/15 the number of short-term arrivals from China rose to 935,000 from 770,000 the prior year. This is also partly a result of rising income in China and some softening of travel controls.

The impact of the lower currency is expected to be most notable for inbound tourists from the UK and US. The analysts note those states which benefit the most are those with the highest tourism specialisation which includes Queensland's Barrier Reef and Sydney in NSW. Other areas such as Canberra and the Northern Territory's Kakadu and Uluru are also important.

TV

The Australian Football League has negotiated a 6-year rights package from 2017 to 2022 across free-to-air TV, payTV and digital streaming, doubling the value of the current deal to $2.51bn. The bidding process appears to be uncontested, highlighting to Citi analysts the plight of TV broadcasters forced into negative value deals to protect the viability of their companies.

Seven West Media ((SWM)) has a deal worth $950m, while Foxtel's deal is reportedly worth $1.25bn. Based on the revised deal as reported by industry press, Citi estimates the potential earnings downside for Seven West of 10-16% in FY17 and 20-25% in FY18.

Clothing

ASX-listed clothing retailers have reported mixed trading in the 2015 winter season. Sales appear to have been good, helped by colder than usual weather, and Citi analysts believe Premier Investments ((PMV)) brands such as Just Jeans and Jay Jays have traded well, helped by good denim sales.

Looking ahead to summer, the analysts are less impressed with the offering. and do not expect shoppers will be inspired to update their wardrobes.

Citi upgrades current earnings forecasts for Premier Investments, Pacific Brands ((PBG)) - the stock upgraded to Buy from Neutral as well - and OrotonGroup ((ORL)), downgrading forecasts for Specialty Fashion ((SFH)).

Chinese Steel

Chinese steel exports are up 26% so far this year, despite a 10% export rebate being removed in January. ANZ analysts observe China's steel exports will total 14% of domestic production this year.

The wave of cheaper exports has triggered a rise in anti-dumping duties with European steel producers leading the way and the US now considering similar initiatives. The analysts believe the short term implications for raw materials such as coking coal and iron ore are negative, either dragging steel prices lower or lowering overall demand.

The overcapacity of steel making in China is expected to weigh heavily with a slowdown in consumption triggering heavy price discounting. The analyst predict China's steel demand will fall for the second year in a row in 2015, after 35 years of consistent growth.

A-REITs

In the year to date, Australian Real Estate Investment Trusts (A-REITs) have delivered a 10.6% total return versus 1.2% in the US and the global sector's negative return of 0.5%, Credit Suisse observes. Of note, the Australian dollar has depreciated by 9.8% against the US dollar, 10.2% against the British pound and 2.3% against the euro.

Credit Suisse expects sector earnings growth to remain stable at 4.6% over FY15-17 with a shift in composition. The broker envisages Westfield Corp ((WFD)) will deliver the most acceleration in FY16 earnings, to 4.0%, while Dexus Property Group ((DXS)) and GPT Group ((GPT)) should decelerate to 4.5% and 3.3% respectively.
 

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Weekly Broker Wrap: Supermarkets, Automotive, Pharma And Banking

-Higher yields no threat to equities
-Price war looming in supermarkets?
-Oz departures slow sharply
-Pharma wholesalers need diversity?
-Automotive dealers stretched?
-Donaco's Star Vegas on track
 

By Eva Brocklehurst

Australian Equity Strategy

As long-term interest rates push higher UBS does not envisage a significant sell-off in the bond market. The broker expects equities can cope with a modest rise in yields spaced over the next six to 12 months. The broker considers the Australian dollar retains downside potential which should be good for Australian market earnings. The broker has trimmed its year-end target for the ASX200 to 5,800 from 5,900, given headwinds emanating from banking and mining. UBS is overweight US dollar earners, housing construction plays and energy stocks.

Supermarket Tracker

Wesfarmers' ((WES)) Coles supermarkets have extended their lead over Woolworths ((WOW)) in UBS' survey. The broker's proprietary survey of the Australian food and liquor market revealed Woolworths score is at its lowest level since the survey began in 2007. In contrast, Coles score was its highest ever. Coles now leads Woolworths in 25 out of 26 categories. Coles is observed winning the marketing war and executing better.

Of most concern to the broker are declines for Woolworths across customer-facing areas, such as value for money, in-store execution and the effectiveness of promotional campaigns. It will take time and money to fix the problems too. UBS maintains that when the number one player is under pressure, major changes to its strategy can cause disruptions across the market.

UBS maintains Woolworths needs to lift morale and with a new CEO that is not attached to margins, amid increasing competitive intensity, the risk is for a price war, with Woolworths going harder and earlier than the market expects.

Overseas Holidays

It could well be the end of cheap overseas holidays for Australians, given the Australian dollar's recent depreciation to a six-year low. Departures from Australia slowed sharply to just 2.0% year on year recently from average growth of 10% over 2003 to 2013. In contrast, arrivals accelerated to a decade high rate of 5.0% after being almost flat from 2005-2013. UBS notes the change in net arrivals is the most positive since the 2000 Olympics and should support consumption, given weak nominal household income. The broker maintains that in a sub-trend economy which lacks domestic drivers, tourism is a welcome bright spot. This view is supported by forecasts for the Australian dollar to fall further by the end of the year.

Automotive Dealers

The valuation of automotive dealers is starting to look stretched to Credit Suisse, although Neutral ratings are retained. industry conditions have supported both AP Eagers ((APE)) and Automotive Holdings Group ((AHG)). AP Eagers has the benefit of no direct Western Australia exposure, with a greater skew toward Queensland. NSW is a key area of strength for the dealership. Earnings momentum is seen favouring AP Eagers over Automotive Holdings. if AP Eagers is fairly valued then Automotive Holdings is probably too cheap, Credit Suisse reasons. That said, AP Eagers needs continued upgrades to justify its rating, the broker adds, while a positive surprise could drive a re-rating for Automotive Holdings.

Pharmaceutical Wholesalers

The passage of the Pharmaceutical Benefits Scheme package through the Australian Senate means a material reduction to spending and, hence, wholesaler reimbursement over the next five years. Credit Suisse expects listed wholesalers, Australian Pharmaceutical Industries ((API)) and Sigma Pharmaceutical ((SIP)) to fully offset the impact to profits by winding back pharmacy trade discounts. Beyond this, should prices continue to fall they will need to reduce operating costs or diversify away from PBS medicines to sustain earnings at current levels.

Domestic Banking

Household banking fee data released by the Reserve Bank of Australia has shown growth for the second consecutive year, following two preceding years of no growth. The main contributor to the 1.5% growth figure was credit card fees (1.9%) while housing fees continued to drag (-0.6%). Macquarie believes the trend points to more rational behaviour and will sit well with shareholders of the major banks as they look to implement strategies to claw back lost returns from the impending increase to mortgage risk weights. The broker notes re-pricing of mortgages has begun and the retail banks are best placed to benefit.

National Australia Bank ((NAB)) has also been progressively re-pricing deposits. Should these re-price to peer-average levels this may boost earnings by 0.6%, Macquarie contends, with potential to create longer term shareholder value.

Donaco International

Donaco International ((DNA)) has signalled its Star Vegas transaction will be completed by next month. Canaccord Genuity views completion of the transaction as a positive catalyst as the company diversifies its revenue base and risks. The Star Vegas acquisition is the primary driver of the broker's forecast earnings growth in FY16, as the company increases its exposure to Asian consumption. Canaccord Genuity has a Buy rating and price target of $1.25

Bell Potter also has a a Buy rating on the stock, with a $1.36 target. The broker observes completion of the acquisition was a key concern and, with the transaction update, Star Vegas now appears on track. Bell Potter also notes an extra US$20m working capital facility is now being sought because of a persistently low win rate at Aristo Hotel. Visits are strong and occupancy is a record 75% but the actual win rates remains weak. The broker suspects the company has had a run of bad luck but that this should soon change.
 

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Weekly Broker Wrap: Stock Picks, Travel, TV And Telecoms

-Credit Suisse positive on Oz housing stocks
-Qube tops Morgan Stanley's transport list
-Is market underestimating Sydney Airport?
-Decline in outbound travel subsides
-Flat outlook for TV advertising
-Telecoms line up in data war
 

By Eva Brocklehurst

Stock Picks

Investors based in China and new immigrants from China purchased $8.7bn of Australian residential property in 2013-14, up 60% over the year. This statistic is equivalent to 15% of the national housing supply, Credit Suisse maintains. Purchases are concentrated in Sydney and Melbourne, where Chinese demand is the equivalent of 23% and 20% of new supply, respectively. Credit Suisse expects the next six years will witness a doubling of Chinese demand for Australian housing.

New foreign investment proposals are not expected to erode demand by very much. Added to low interest rates, this means the outlook should remain positive for housing-related stocks such as developers, building material companies and property web sites, in the broker's view.

Demand for infrastructure stocks is typically resilient through economic cycles. Morgans observes the sector has rewarded investors, boosted by falling interest rates. However, Australian investors are constrained by the number of ASX-listed infrastructure stocks and investing globally may provide investors with a far larger choice and greater asset diversity, where values may be cheaper than ASX-listed entities.

Meanwhile, the broker has updated coverage on the transport sector with a neutral view as valuations appear toppy. The long-term pick in the sector is Qube Logistics ((QUB)), as while the stock appears expensive, it is building out a profitable business that should be substantially larger in a few years time. The broker also suspects the market is underestimating the amount of cost savings Sydney Airport ((SYD)) can achieve in 2016-17, as expensive interest rate swaps expire and are replaced at far lower rates. The company's credit metrics may improve faster than expected, increasing the potential for capital management initiatives.

The broker considers the insurance sector is expensive at present but QBE Insurance ((QBE)) is a preferred pick, given the upside from its transformation program. QBE is also able to benefit from any fall in the Australian dollar and retains a strong leverage to any rise in US interest rates. Morgans has made changes to its top 100 high conviction list this month, adding Carsales.com ((CAR)), Qantas ((QAN)) and Sydney Airport. Macquarie Group ((MQG)) and Transurban ((TCL)) have been removed because of strong share price appreciation while Seek ((SEK)) is removed because of a lack of short-term re-rating catalysts.

Travel

Preliminary arrivals and departures data from the Australian Bureau of Statistics signals the consistent decline in the rate of outbound travel over the last 12 months has stalled. Bell Potter suspects this points to improving household consumption, given this variable is the most important driver of outbound travel. The data also lines up with the broker's analysis which suggests that the declining currency and soft economy have not resulted in a shift in market share to domestic holidays. Still, Bell Potter is only expecting a modest steady improvement in the rate of outbound travel. CoverMore ((CVO)) and Flight Centre ((FLT)) remain the broker's preferred ways to play the improving outlook for outbound travel.

TV

Citi has reviewed audience ratings for free-to-air broadcasters with the data showing Nine Entertainment ((NEC)) is struggling to replicate its 2014 performance. Seven West Media's ((SWM)) channel has retained its leadership position while Ten Network ((TEN)) has improved. Meanwhile, PayTV audiences reached their second highest level in share terms in March. The broker recently lowered medium-term forecasts for advertising to no growth, because of growing structural pressures from alternative viewing platforms.

Citi rates Nine Entertainment as a Buy and considers it is a potential M&A target, with a net long cash position and option value on affiliate deals. Seven West Media is rated Neutral as it is cheap but has no earnings growth, while Ten is Neutral High Risk, trading at fair value based on the value of its TV license.

Telecoms

Macquarie has developed a new monthly mobile phone plan tracker for the Australian market, which compares calling and data inclusions between the three major operators for post-paid handset plans. There were material increases in data inclusions by all players in April with Telstra ((TLS)) lifting by as much as 6 gigabytes per month. SingTel's ((SGT)) Optus lifted data inclusions by up to two gig and moved to offer unlimited voice for $40/month. Vodafone ((HTA)) responded with the return of its double data promotions.

Macquarie observes competition is heating up but believes mobile service revenues can continue to grow, given the increased demand for data. Still attention is warranted to trends with regard to average revenue per unit and handset subsidies.

Morgan Stanley has observed the data value war continues but finds little evidence of a price war. Value has increased via the data gains with no decreases in prices. Optus actually increased plan prices over the month, by 14-20%. Morgan Stanley expects industry prices will rise 2-3% in 2015 and 2016. Optus has also added six months free in Netflix to new subscribers. This usage is not unmetered. As the consumer watches Netflix the mobile data allowance is consumed and they can potentially exceed allowances.
 

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CORR: Mantra Adds More Upside With Outrigger Assets

The story below, originally published yesterday, 7 April 2015, has been corrected to remove the incorrect statement that Mantra had acquired the Outrigger brand in Australia. The acquisition includes all assets, including management rights to four properties, while the brand remains with Outrigger Enterprises Group, based in Hawaii. FNArena apologizes for any potential confusion caused.

-Strong growth in key geographies
-Benefits from lower AUD
-Well positioned for consolidation
 

By Eva Brocklehurst

Hotel and resort operator Mantra Group ((MTR)) has added four assets from Outrigger Hotels & Resorts to its portfolio. The Outrigger properties complement the resort suite in terms of location and customer profile, in the playgrounds of Queensland's Gold Coast, Noosa and Airlie Beach. These are leisure market regions which are easily accessible in terms of air and land transport.

The acquisition makes strategic sense to Macquarie, providing additional exposure to quality properties. There are potential synergies from the integration of the new properties into the company's marketing as well as benefits from Mantra's expertise. The broker highlights a recent report on the hotel industry outlook for this year which signals solid revenue per available room (RevPAR) growth of 4.6% out to FY17. The Dransfield report forecasts mining-related markets will continue to struggle and, in an environment of high CBD occupancy rates, slower supply growth does put some constraint on demand. The biggest growth areas in the Australian hotel markets are seen in Cairns, Gold Coast, Melbourne and Sydney.

Macquarie had not factored in such a large portfolio acquisition so soon - acquired for $29.5m - but the combination with modestly higher CBD room rate growth means the broker has ratcheted up forecasts post FY16. Macquarie expects earnings growth of 15% in FY16 and 10% in FY17. Favourable industry fundamentals bode well such that Morgans also remains a "happy holder" of the stock. Taking the acquisition into account, Morgans increases FY16 and FY17 forecasts by 5.5%. The broker expects more acquisitions will be announced over coming months.

Management recently issued an upbeat trading update, stating that its strong performance continued in January and February with trading ahead of expectations. With a strong position in domestic travel, brokers expect the company to benefit from the decline in the Australian dollar.

Deutsche Bank recently initiated coverage on the stock with a Buy rating. The broker's view is based on Mantra's capital-light business - the company does not own the properties outright - which generates strong cash flow and attractive organic returns amidst supportive industry conditions. Despite a positive outlook on the industry, Deutsche Bank has taken a conservative stance towards RevPAR forecast to reflect supply response and demand risk. Nevertheless, the broker observes the company retains the balance sheet capacity and scale efficiencies to drive further profit growth via deployment of its capital in acquisitions.

Credit Suisse, too, considers Mantra well positioned to capitalise on further consolidation in the market and suspects the opportunities are increasing, with a number of similar-sized transactions that might become available. The industry conditions are improving and the lower Australian dollar is benefitting both domestic and inbound travel. Credit Suisse believes Mantra is in an upgrade cycle and should deliver substantially stronger earnings growth over the next three years.

Mantra is Australia's second largest accommodation services provider and operates with three main brands: Peppers, Mantra and Breakfree. The company operates the properties under long-term contracts with the owners, while taking strategic stakes in the associated real estate such as restaurants and conference facilities. Headquarters are in Surfers Paradise, Queensland, and Mantra listed on ASX in June last year. The stock has three Buy ratings and two Hold on the FNArena database. The consensus price target is $3.51, suggesting 4.3% upside to the last share price. Targets range from $3.20 to $3.70.

See also, Brokers Attracted To Mantra's Growth on March 2 2015.
 

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article 3 months old

Brokers Attracted To Mantra’s Growth

-Cash flow affected by timing
-FX benefits yet to play out
-Recovery in corporate travel too
 

By Eva Brocklehurst

Mantra Group ((MTR)) is supported by a positive outlook for the travel market with a strong pipeline of new properties in the wings. The hotel and resort operator is citing strong inbound and domestic demand and a recovery in the corporate market.

Earnings growth in the first half reflected increased occupancy, rate rises and strong growth in online bookings. The company also declared a maiden interim dividend of 5c per share, fully franked. The policy is to pay out 70-80% of statutory profit in dividends and a dividend reinvestment plan (DRP) will operate for this particular dividend.

Operating cash flow was weaker than Morgans expected, but this was attributed to a timing issue following payment of IPO costs. The balance sheet is roomy enough for further acquisitions and another five new properties will be added in the second half and five in FY16. Morgans is attracted to the quality of the business, the diversified portfolio and cash flow, but current trading levels suggest to the broker a Hold rating is appropriate. Earnings are seasonally skewed to the first half, particularly for the resorts, given peak bookings, occupancy and room rates over the Christmas holidays.

Macquarie had assumed a higher interim dividend would be paid because of this seasonal skew to the first half. Having expected an upgrade to forecasts the broker considers management is being conservative. Commentary was positive, signalling a strong start to the second half. Macquarie also observes management was not willing to attribute the strengthening in domestic travel entirely to an FX benefit, suggesting that these effects are yet to play out. Nevertheless, Mantra did state the currency was having a stronger influence on international inbound travel, as emerging markets are more price sensitive.

Macquarie was concerned about a potential softening in the corporate market as key business indicators are patchy. This concern was put to rest, with the seasonal return of the market in February considered to be quite solid. The broker also notes the group is unconcerned about the increase in the Wotif.com ((WTF)) commission rate to 15% from 12%, believing the overall impact will be net neutral.

The outlook has strengthened further, in Credit Suisse's opinion. Properties are being added at a faster rate and the broker now expects an earnings upgrade cycle and a more supportive operating environment will allow a substantially stronger growth profile over the next three years, at around 15% compound. Both CBD operating metrics and the resorts business are supportive and the falling Australian dollar adds a fillip. Credit Suisse is a buyer into any weakness or liquidity events. The first of these liquidity events, concerning escrowed shares, is in March, affecting 10.8% of shares on issue. The second is in September and affects 32.5% of shares.

The broker was disappointed that management only reiterated FY15 prospectus forecasts rather than upgraded but considers there are a number of features of the current environment that warrant a premium, including a substantial competitive advantage, the ability to self fund growth as well as the general industry outlook.

UBS downgrades to Neutral from Buy on valuation grounds but remains buoyed by the growth in accommodation demand and the new property additions. It is simply that most of the cyclical upside in the 12 months ahead is reflected in the share price. On FNArena's database there are two Buy ratings and two Hold. Target is $3.35, suggesting 3.9% upside to the last share price. Targets range from $3.20 to $3.60.
 

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Ardent Leisure Changes Tune On Gyms

-Main Event the driver of growth
-Texas resilient despite oil fall
-Risks rise with model changes

By Eva Brocklehurst

Gym members deserted Ardent Leisure's ((AAD)) health club segment in a significant way in the first half. This was a key area of weakness and a surprise to brokers, with the share price falling sharply in reaction to the news. Health club revenue was boosted by acquisitions but earnings were down 9.0% in the half.

The suddenness of the fall in gym membership is of concern to Goldman Sachs. The attrition was attributed to members shifting to "convenience" or 24-hour gyms. The broker observes Ardent Leisure is intent on quickly stemming the outflow, with plans to convert 14 of its 77 gyms to a hybrid full service/24-hour access model in the second half. Staffing on weekends and public holidays will be reduced to cut costs. A risky, but essential, step in the broker's view.

Otherwise, the Main Event family entertainment assets demonstrated resilience in the US state of Texas, despite a lower oil price. There appears to be no impact on corporate bookings from the downturn in oil prices. Indeed, the broker notes many corporations are moving headquarters to Texas, including Toyota and Mobil. While 14 of Main Event's 19 centres are in Texas it appears lower fuel prices have spurred consumer spending in the US. Goldman remains wary that corporate downsizing may dampen spending and expects the rolling out of new centres will be the driver of growth, rather than Texan sentiment.

The broker is relieved that those centres being opened outside Texas are also trading strongly, having feared lack of customer awareness and greater competition in cities such as Chicago. Turning to the Australian division, the consumer environment was more difficult in January and Goldman envisages little prospect of this changing in the near term with unemployment still rising.

In Australia, JP Morgan observes theme parks should benefit as a falling Australian dollar increases inbound tourism. Still, the broker questions whether the stock can maintain its growth multiples when one of its historical drivers of growth - health clubs - has declined suddenly. The broker believes it will be important to note if the stock maintains its status as growth-priced stock, as opposed to one previously priced on yield. Longer term, there is opportunity to grow the penetration rate of gyms. There has been a large increase in supply recently and JP Morgan has anecdotes of many 24-hour franchise clubs being in distress, so there may be opportunity for consolidation in the market.

The market appears to be unwilling to look through the uncertainties surrounding health clubs and the risk of a slowing in the Texas economy impacting on Main Event, in UBS' view. The churn in the flexible membership of the health clubs was significant and the broker considers the coming months will be crucial in order to demonstrate a turnaround and success with the new strategy, as well as sustained improvement in other segments such as bowling. UBS suspects the impact of lower oil prices in Texas will be more benign than previous recessions but remains cautious around momentum at Main Event, given the difficult in quantifying the incremental impact of any margin slowdown.

Morgans is relieved that Main Event shows no signs of slowing markedly, as it is the company's only driver of growth currently. The broker welcomes the about turn in management's strategy, as it previously went to great lengths to emphasise its differentiation from the 24/7 gym models. Costs appear to be the only downside in adopting the convenience offering. The broker suspects the mooted staffing changes will have to be finely tuned, as the gyms could risk losing existing members if service levels are affected. Either way, such a significant change in strategy, despite being sensible, requires runs on the board to instill confidence.

The WA Fitness First acquisition is also tracking behind target while cost synergies are ahead. Membership trends are a concern for Morgans as these were a key selling point at the time of the acquisition and the lead indicator of future earnings performance. In terms of theme parks, the broker believes the flat revenue in January was a credible result given wet weather in the company's major Gold Coast region during the month.

While Ardent Leisure plans to progressively convert its Goodlife chain to position it as the only large format gym chain with 24-hour access, Deutsche Bank fears the rising risks in transforming a business model. The broker materially downgrades near-term earnings forecasts and reduces its rating to Hold from Buy.

Ardent Leisure shows five Hold ratings on the FNArena database. The consensus target has fallen to $2.66 from $3.18 post the result and now suggests 12.4% upside to the last share price. The dividend yield on FY15 and FY16 forecasts is 5.7% and 6.1% respectively.
 

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article 3 months old

Corporate Travel Now Truly Global

-Earnings estimates lifted
-Operating leverage enhanced
-Strong growth profile for corporate
 

By Eva Brocklehurst

Corporate Travel Management ((CTD)) has substantially expanded its footprint and expects sales momentum to improve significantly as a result. The company has acquired Diplomat Travel, a US business, and Chambers Travel, a UK/Europe business, for an aggregate $83.4m in cash and scrip over three years. The US acquisition adds scale in an existing market while the European acquisition diversifies the company's earnings base.

Macquarie is confident the earnings margins in the UK/European business should increase over time as scale efficiencies are achieved, noting North American margin expansion of around 350 basis points in FY14 is an example of the company's operating leverage over a relatively fixed cost base. The acquisition costs look large for a company the size of Corporate Travel but as Macquarie highlights, with increased scale comes greater negotiating power with suppliers and improved support from airlines and package suppliers. Integration risks remain but Macquarie is confident that having worked with Chambers Travel previously, Corporate Travel will make the grade. Brokers also observe key personnel will continue in their roles.

The company will undertake a fully underwritten 2-for-35 renounceable entitlement offer at $8.80 to raise $45.5m to partly fund the acquisitions and the board has also subsequently upgraded earnings guidance to above $45m from above $41m for FY15, assuming a 6-month contribution from these acquisitions of $4m.

Macquarie believes the company is well placed to penetrate further markets offshore via acquisitions and expand its existing business, but does not expect further acquisitions in the near term. The broker considers the medium term outlook may be strong but the majority of this is captured in the current share price and, hence, a Neutral rating is warranted. Macquarie's price target is raised to $10.00 from $8.50. Morgan Stanley observes the stock is not cheap, although lauds its track record of execution and the fact that organic growth has provided two successive positive earnings revisions. The acquisitions represent another earnings catalyst and also imply the valuation is not as demanding as it first appears.

Morgan Stanley assumes few synergies and modest growth from current run rates but, in combination with improved existing business, lifts earnings estimates by 12-13% for FY15-16. The broker also observes that corporate travel is the segment which is least susceptible to online challenges and has the strongest growth profile. Moreover, any cyclical recovery could provide Corporate Travel with significant operating leverage. Morgan Stanley also expects more clarity on systems implementation and integration in 2015. The broker's base case shifts closer to the bull scenario, which calls for further industry consolidation and strong execution, and an Overweight rating is retained. Target is upgraded to $12.20 from $8.80.

In the four years since listing, Morgans observes Corporate Travel has now delivered on its global footprint ambitions, expanding into Europe and increasing scale on the US east coast where it was previously under represented. Morgans believes the company can now win more global contracts and this will underpin strong earnings growth for many years to come. The purchase price is attractive and there are incentives for management to grow the business strongly. This deserves an upgrade to Add and the broker recommends shareholders take up their entitlements. Target is revised up to $11.20 from $8.95.

The price paid is also justified, in JP Morgan's view, as it makes Corporate Travel a truly global player. Other strategic benefits include IT platforms and sector exposure with the ability, via Chambers, to service clients in 10 European languages. Diplomat is based in Washington DC, providing the company with exposure to government, defence and security service clients. JP Morgan retains an Overweight rating and raises the target to $10.60 from $9.00.

Corporate Travel now operates in 46 cities and 23 countries and can boast 24-hour support coverage. Chambers Travel is a long established business in eight European countries and provides cross selling opportunities for key clients that travel globally. Diplomat extends Corporate Travel's reach to 18 US cities and eight states. The business focuses on the high value travel market, with two in every three tickets purchases for international travel. Macquarie notes Diplomat's FY15 earnings contribution will reflect the loss of key major government contract, because the client required a global travel partner located in multiple regions.

FNArena's database has three Buy and one Hold rating for CTD. Consensus target price is $11.00, suggesting 6.1% upside to the last share price. This compares with $8.77 ahead of the acquisition announcement.
 

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