Ann: 1H20 Appendix 4D and Interim Financial Report, page-31

Very good question.

I believe they can endure whatever the next 6-12 months does have in store, but I must also add a giant "but who knows" caveat.

Frustratingly, all the work I've done on this business the past few months has largely overlooked their current gross debt balances: the reason being that the tangible asset backing alone from the non-core asset disposals (as per new CEOs strategic overview) was set to be sufficient to put them into a net cash position once complete (H2'20 was the original plan). The largest disposal was thankfully completed in Jan ($16.5m net proceeds towards debt), but now there's still about ~ $10m tangible assets held for sale & a net debt balance of ($7m) (immediately after the sale of GBR helocpters in Jan). But who the hell is going to buy anything right now, let alone a bunch of leisure assets? So that $10m held for sale will presumably sit there for some time now.

So now the company has a very modest gearing ratio of ~ 10% by my estimates against a bunch of hardy PPE.
Infact, the NTA per share backing is $0.16, so a whopping 50% discount to the current equity price!

So as long as the bankers don't be d1cks & try to fire sale their assets in the event of a technical breach (I welcome others with more experience with Debt covenants to add their views here, I personally have no idea how to truly weigh this risk, all things considered) there's kind of no other way to lose from the current shareprice (generally speaking, obviously there are literally other ways, but I view them as negligible).

Even during the tough bushfire period, a Cairns downturn & shaking off the legacy of prior management (who operated the assets woefully), the assets were still yielding a very healthy FCF yield > 7%, and had 'lazy' capital all over the balance sheet that the new management have targeted to free up & improve their ROIC.

New management have cut out $6m in annual costs & have communicated an intense focus on managing operating leverage, including mothballing some of the GBR assets (which I'd now view as basically a certainty).

So if they can mothball their GBR assets & intensely focus on costs, they could protect some NTA erosion for a short or medium period. Additionally, the demographic users of skydive assets would presumably be far less impacted from this virus, and be quicker to continue their normal adrenaline-seeking behaviour, and this cashflow tap can be switched back on promptly. But ofcourse none of this can really be modelled - its just so uncertain.

All things considered, I do not view uncertainty as necessarily meaning the death of this business. Its just unknown. The market is pricing this asset as if it does know what will happen, and its saying that it thinks this disruption will cause death. I see no reason to be convinced that this should be the base case.

I am still buying for the long-term, but this is not for everyone!