By Jenny Ruth
Tuesday 15th February 2011
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Tourism Holdings' lowered guidance of a $4 million loss for the year ending June is $6 million worse than his forecast, says Rob Mercer at Forsyth Barr.
“A decline in UK/European visitors and the weather-related disruptions in Queensland are the biggest contributing factors,” Mercer says.
“These issues were compounded by Tourism Holdings' planned increase in fleet for Australia and the capital cost of its Road Bear acquisition.” The company settled its US$17 million (NZ$22.4 million) Road Bear purchase on December 31.
While the company has acknowledged it is likely to breach its banking covenants, it owns all its motorhome fleet, giving it higher financial and operational leverage, Mercer says.
“We are confident that Tourism Holdings will renegotiate its banking covenants without the need for it to raise equity with the preferred option being to downsize its Australasian fleet,” he says.
While the company's trading environment has been volatile and challenging over the last few years, “we continue to regard the prevailing weak conditions as cyclical and not secular trends on Tourism Holdings' business,” Mercer says.
Near-term risks continue to weigh heavily on the company's businesses but its rental operations, Waitomo attractions and coach-building CI Munro division “are well-positioned to later benefit from the upside of the recovery phase.” Mercer values the shares at $1.27.
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