Morgans CIMB Australia│Equity research│February 26, 2018 Apollo...

Morgans CIMB
Australia│Equity research│February 26, 2018
Apollo Tourism & Leisure Tracking to plan

■ ATL’s 1H18 result was in line with our expectations after one-offs.

■ Management noted forward bookings are strong in NZ and North America, while Australia is in line with company expectations. FY19 will benefit from the US tax cuts with the group tax rate to decline from 32% in FY18 to 25% in FY19; however, higher debt assumptions/net interest costs negate this impact, in our view.

■ ATL continues to screen attractively (c13.7x FY19F EPSA and 3.5% yield); however, with the stock now trading within 10% of our new PT; downgrade to Hold (from Add).

1H18 result – in line with expectations

ATL reported an in line 1H18 result after adjusting for two one-off items (A$2.5m revaluation gain relating to CanaDream and A$0.4m of after-tax acquisition costs). Normalised EBIT of A$26.2m (excl. one-offs) was c4% ahead of Morgans' forecast (A$25.2m) while normalised NPAT (excl. one-offs) of A$14.2m was in line with our forecast. Based on our estimates, a majority of Australian and North American revenue growth was contributed by recent acquisitions (North America understandable given the decision to hold back fleet sales for margin). Net debt increased to A$197m, reflecting the equity raising undertaken in FY17, but settlement of the CanaDream and George Day acquisitions in early FY18. All else being equal (ie excluding any future acquisitions), ATL's net debt position should only increase with the size of the fleet (eg in the US as the footprint grows and occasionally in strong markets like NZ this year). ATL's interim dividend of 2cps was below our forecast and equates to a payout ratio of just 25%. Management reiterated its 45-55% payout range and therefore the final dividend should play catch up vs the interim.

Well placed into 2H; tax benefit in FY19 but offset by higher debt

While ATL did not provide specific guidance, management maintained its position of being comfortable with current FY18 consensus NPAT forecasts of cA$19-19.5m (excluding one-offs). Our FY18 estimate of A$19.1m falls modestly with higher divisional EBIT forecasts offset by higher net interest costs and a slightly higher tax rate vs our prior forecast. We have also factored in the lower tax rate guidance from FY19 (c25%), although a higher debt assumption and therefore higher net interest costs have offset this tax gain. Overall, our EPS forecasts move by -2.8%/+1.4%/-0.5% in FY18/FY19/FY20 ATL also noted that forward bookings are strong in North America and NZ, while Australian forward bookings are 'in line with expectations'.

Investment view - Hold & A$1.93 price target

Our blended valuation and price target (DCF, PE, EV/EBIT) falls to A$1.93 per share (from A$2.03), largely due to an increased debt position. ATL continues to screen attractively: 14.4x FY19F PE (c13.7x pre-amortisation); 3.5% yield; and offering a solid double digit EPS growth profile. However, after a reasonable share price rally and with the stock trading within 10% of our PT, we move to a Hold rating (from Add). Key risks include: increased competition, seasonality, tourism related shocks, P2P movement, FX, movement in fuel price and deterioration of general macro.