Sealink Travel Group Limited

SLK Details

Australia’s largest integrated land and marine, tourism and public transport service provider, Sealink Travel Group Limited (ASX: SLK) has established international operations in London and Singapore. The company has a market capitalization of $1.98 billion as on 26 March 2021.

Result Performance (Half-Year ended December 31, 2020)

Revenue for the interim period stood at $570.8 million, an increase of 329.5% on previous corresponding period (pcp)., with ~91% of Group revenue is now either contracted or non-discretionary commuter transport revenue, providing “essential” transport services.

Underlying Net Profit After Tax and before Amortisation for the period stood at $48.1 million, an increase of 231.9% on pcp. The period witnessed good demand from domestic tourism sector despite COVID-19 lock downs and travel uncertainty. The Board of Directors declared fully franked interim dividend of 7.0 cents per share.

(Source: Company Reports)

Outlook:

The Marine and Tourism division continues to re-build its revenue base from domestic travel and is well placed to capitalize on domestic tourism opportunities regardless of whether international border restrictions remain in place. The International Bus division will be cautiously managed as further budgetary constraints in the London public transport market are expected. Strong focus will be given to the transition of the Singapore Bulim contract at the end of May 2021 and the new Sembawang-Yishun Singapore contract commencing in September 2021.

Technical Overview

Monthly Chart

SLK Monthly Technical Chart (Source: Refinitiv (Thomson Reuters))

Note: The yellow color line indicates a trend-line while the purple color line in the chart depicts RSI (14-period). The green color histograms at the bottom of the chart indicating monthly volumes.

SLK prices moved up significantly and made its new 52-week high recently after breaking symmetrical triangle pattern at $6.45 in February 2021 on a monthly chart. Prices might test its next resistance level of $10.45 in the coming weeks ahead. On the lower side, $8.35 and $7.18 are the immediate support levels. Volumes stand supportive for the recent price action. However, RSI (14) is hovering near the extreme overbought region ~77 which increases the probability of profit booking from higher levels.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (illustrative)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation:

The company’s EBITDA margin and net margin for H1FY21 stood at 12.3% and 5.6%, better than the industry median of -20.6% and -39.1%, implying decent operating performance of the company. However, its gross margin for H1FY21 stood at 25.5%, lower than the industry median of 54.9%. ROE for H1FY21 stood at 5.3%, better than the industry median of -6.3%, implying that the company generated better return for its shareholders than its peer group. Current ratio for H1FY21 stood at 0.78x, lower than the industry median of 0.99x.

We have valued the stock using a relative valuation method with EV/EBITDA Multiple Based Valuation (on an illustrative basis) and we have arrived at a target price of lower double-digit downside (in % terms). We believe that the stock may trade at a slight discount as compared to its peer median EV/EBITDA (NTM trading multiple) as the travel restrictions across international borders may affect the company’s operations and business.

Considering the aforesaid facts, current trading levels, technical analysis, and associated risks, we give “Sell” recommendation on the stock at the current market price of $9.14 per share up 0.439% on March 26, 2021.

SLK Daily Technical Chart (Source: Refinitiv (Thomson Reuters))

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