Company Overview: Sealink Travel Group Limited is a tourism and transport company. The Company's principal activities include ferry services; tourism cruises, charter cruises and accommodated cruising; coach tours; packaged holidays; travel agency services; tug and barge services, and accommodation and restaurant services at Vivonne Bay. Its segments include Kangaroo Island Sealink, which offers ferry services, retail travel services and accommodation facilities at Vivonne Bay; Captain Cook Cruises, which runs tourist cruises, charter cruises, ferry passenger services on Sydney Harbor; Sealink Queensland, which includes and manages the operations of Sealink Northern Territory, and provides ferry passenger services in Townsville and Darwin; Captain Cook Cruises WA, which includes tourist cruises and ferry operations in Perth; Sealink Gladstone and Sealink SEQ (TSM), which includes ferry and barging operations, and Corporate, which provides finance, administration and risk management support.


SLK Details
 

SeaLink Travel Group Limited (ASX: SLK) targets to be one of the Australia’s leading dynamic tourism and transport companies with an aim to bring the nation’s best tourism experiences to the world. The Group is working hard so that it can position itself as the provider of one of Australia’s leading eco-tourism experiences. SeaLink’s operations extend across New South Wales, Queensland, Northern Territory, Western Australia and South Australia and the group provides services that include ferry and barging services. As Tourism fundamentals remain sound and a significant growth has been recorded in international tourism, the potential from the sector is expected to benefit SeaLink Travel. Amidst this, the group’s latest acquisition of Kingfisher Bay Resort Group is expected to be strategically and financially compelling. The group is continuously making efforts for providing better services and had announced for introducing a 40-hour jammin across five stunning locations on beautiful Magnetic Island in April. It also flagged about expanding its North Queensland Adventure series to Townsville residents and visitors. While SLK might not have shown a stark improvement in performance in the latest half year over 2017, the trend in revenue growth and earnings over the past 5 years has continued.

Completion of the Acquisition of Kingfisher Bay Resort Group: Recently, the Company announced the completion of the acquisition of the assets and operations of the Fraser Island Kingfisher Bay Resort Group on Fraser Island, Queensland, for $43 million from Cosmos Australia Pty Ltd and complied with all the conditions that were necessary to complete the acquisition. This purchase price included land and buildings, plant and equipment, three vehicular ferries, a 30-vehicle touring coach fleet, all contracts, licences, intellectual property and goodwill. This acquisition comprised of four distinct, profitable and well-established tourism and transport operations - Kingfisher Bay Resort, Eurong Beach Resort, Fraser Explorer Tours and Fraser Island Ferries. These all operations will account for 90 per cent of accommodation rooms on Fraser Island.


Kingfisher Bay Resort Group’s Historical Operating Performance (Source: Company Reports)

Fraser Island is one of the most iconic destinations in Australia and is the world’s largest sand islands. It is one of the famous islands throughout the world for its World Heritage-listed wonders. It is located 15 kilometres off from Queensland’s coast and stretches for about 123 kilometres in length. Kingfisher Bay Resort Group is one of the major Group for hospitality, touring and transport operation on Fraser Island. SLK is looking forward to taking the synergy benefits of this leading tourism business to drive future protection, promotion and growth of the Island. Based on pro forma unaudited historical basis for the twelve months ending 31 December 2017, KBRG’s EBITDA was slated to be of $7.9 million, and an EBIT of $5.8 million. It is anticipated that this transaction will be material and will deliver earnings per share accretive in the first full financial year. It is expected that total interest-bearing debt after the acquisition will be circa $110 million. In fact, the group also got support from ANZ that provided a Term Sheet for the provision of a debt funding facility to assist with the purchase of Kingfisher Bay Resort Group.

Decent Financial Performance: The Group released its half-yearly financial results ending on 31 December 2017 and the results were in line with the Group’s expectations. The Company happily announced an 8.3 per cent increase in the Interim Dividend (6.5 cents per share, fully franked). The interim dividend for the half-year ended 31 December 2016 was 6.0 cents per share. The latest interim dividend represents a 58.2 per cent return of after-tax net profit to shareholders. SLK’s net tangible backing per ordinary share improved from $0.95 as on 31 December 2016 to 1.05 as on 31 December 2017. The Group recorded a Net Profit before Tax (PBT) of $16.3 million as compared to $19.0 million for the previous corresponding half; whereas Net Profit after Tax (NPAT) was $11.3 million as compared to NPAT of $13.1 million for the December 2016 half-year.


Operating Revenue Performance (Source: Company Reports)

SeaLink Queensland & Northern Territory performed well and recorded an Earnings Before Interest and Tax (EBIT) before allocations of $10.6 million as compared to $11.8 million for the corresponding period last year. Sydney charter sales decreased by $1.0 million primarily due to the one-off three month dry-lease charter to Tonga in the prior year not being repeated. The Stradbroke Island operations continued to trade well and have seen an increase in revenue of 4.5 per cent for the same period last year. There was no major change in the Townsville based business in the first half-year. Sales increased by 8.8 per cent over the first half of last year with business contribution increasing by 16.6 per cent. Charter income continued to show positive improvement, increasing by 20.8 per cent and reflected further penetration in the cruise ship market.


EBIT Performance (Source: Company Reports)

Expansion of Services:  SeaLink already has significant operations in Queensland that services Magnetic Island and Palm Island from Townsville, the LNG Plants on Curtis Island from Gladstone, North Stradbroke Island and the islands of Moreton Bay and is now planning to add its new Brisbane office as a hub to complement its Adelaide headquarters. One of its Director Andrew McEvoy, having an indirect interest in the Company acquired 5,229 ordinary shares for consideration of $3.80 per share from the market. The Group is planning to acquire a new passenger vessel which will be initially used for its Sydney operations, and this versatile and highly flexible vessel will commence its services by supporting the Manly-Barangaroo, Hop-On/Hop-Off and through whale watching services on Sydney Harbour.


Total Assets (Source: Company Reports)

Positive Outlook: The Group is planning to further increase its national footprint of services and offerings to iconic destinations. It will deliver strong synergies with its enhanced dining and cruise offerings. It is already providing highly cost-competitive services due to its existing infrastructure. The Board will continue to consider the Company’s growth requirements, its current cash position, market conditions and the need to maintain a healthy balance sheet when determining future dividends. The Group will continue to seek acquisitions that fit within its defined investment criteria. It will continue to maximise the synergies and will look forward to cost-reduction opportunities. Meanwhile, good earnings quality led to an improvement in net operating cash flow. Moreover, the acquisition of the leading tourism, accommodation, hospitality and transport operation in a World Heritage (King Fisher Group) listed location was a major addition to its portfolio of operations that were located in prime tourism locations.


Gearing over the years (Source: Company Reports)

Stock Performance: The Group expects that its latest acquisition will be earnings accretive in FY19 and will deliver further value to shareholders through cost synergies, leveraging group purchasing power, through capex improvements to enhance customer experience and by maintaining a prudent financial structure well within banking covenants. SeaLink South Australia’s operations performed well with both the Kangaroo Island and Murray Princess operations and improved on last year’s performance. SeaLink continues to discuss opportunities to extend its licence agreement with the South Australian Government on a mutually beneficial basis. Assuming that average seasonal and current business conditions will remain same over the remainder of the period of the business, so the Group has forecasted that trading for the six months to June 2018 will be in-line with the previous year excluding the impact of any new acquisitions. Meanwhile, the recent acquisition will enhance its position as a major player in connecting Australian tourism icons to the world. The Current Ratio improved from 0.60 to 0.68 and Debt-Equity Ratio also improved from 0.50 to 0.41 in one year as at 2017. In last one year, the stock was down by 7.75 per cent, and by 1.55 per cent in last three months (as at May 21, 2018). The stock witnessed a marginal recovery of 0.26 per cent in last one week and was up 0.262% on May 22, 2018 before trading flat. Its return on equity of 16.7% is also above the industry median (12.4%). We give a “Speculative Buy” recommendation at the current market price of $ 3.81, by looking at the growth potential and benefits from the travel and tourism boom.

 

SLK Daily Chart (Source: Thomson Reuters)

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