29 June 2018 INTERNAL ONLY RECOMMENDATIONS Rating BUY Risk Medium Price Target $5.10 Share Price $4.45 SNAPSHOT Monthly Turnover $9.3mn Market Cap $446mn Shares Issued 101.2mn 52-Week High $4.46 52-Week Low $3.69 Sector Consumer Discretionary BUSINESS DESCRIPTION Sealink Travel Group Limited (SLK) is a diversified tourism and transport company in Australia. SLK provides services in two diverse industries being the Transport Industry, moving regular commuters and freight between travel destinations, and also the Tourism Industry, promoting and packaging holiday destinations, providing tours and delivering tourists to travel destinations. SLK operates under the brands SeaLink and Captain Cook Cruises. 12-MONTH PRICE & VOLUME RESEARCH ANALYST Nick Caley + 613 9602 9283 ncaley@baillieuholst.com.au Nicolas Burgess, CFA + 613 9602 9379 nburgess@baillieuholst.com.au Disclosure The author owns no shares in SLK. SeaLink Travel Group (SLK) COMPANY REPORT The detail s in the devil Update: SLK announced that it has been awarded a 10-year contract to operate a two-vessel ferry service from the Tasmanian mainland at Kettering (40-minute drive south of Hobart) for the 20-minute trip to Roberts Point on Bruny Island (BI). The contract commences on 23 September 2018. We understand that SLK will take fare box risk on the operation, although with subsidisation from the Tasmanian Government. Bruny Island: BI is located off the S.E. coast of Tasmania and is known as a major eco-tourism destination for bush walks/wildlife. It has a range of accommodation offerings and is also known for food/wine. Apart from 600 residents, visitation to BI was 148k in 2016/17, with an annual average growth rate of 20% over the last three years. Around 80% of visitors are from Australia. The service: The ferry is the sole means of visiting BI, with the service currently operated by Bruny Island Ferry Co. under contract from the Tasmanian Government which is now expiring. The current operator uses a ferry (Mirrambeena - capacity 70 vehicles) and a smaller vessel (Bowen - capacity 30 vehicles) to operate 12 return trips/day in winter and 19 in summer. The return price for a standard vehicle (up to 6m) is $33-$38 depending upon the season, although the price increases significantly to tow a car/boat or for larger vehicles. A 2017 local council research paper cites that the service currently transports 120k vehicles p.a. with annual average occupancy of 50%, whilst at the same time noting heavy congestion in peak periods. Logistics: SLK has agreed to: 1) build two new ferries (capacity of 36 vehicles) at a cost of A$10m+ to operate the service, with delivery of the new vessels in second half of 2019 and the first half of 2021 the Mirambeena will be returned to the Tasmanian Government when the new vessels are delivered; 2) transfer one of its own vessels, Moongalba, from Queensland to operate the BI run until new vessels are delivered; and 3) introduce a booking system for the service. Changes to forecasts: We have increased FY19 and FY20 EPS forecasts by 2% and 3% respectively we have assumed annual vehicle transfers of 120k at an average fare of A$35, with similar margin metrics to Kangaroo Island. Investment view: BUY retained with revised DCF valuation of A$5.09 (prev. A$4.92) and price target of A$5.10 (prev. A$4.90). The BI route looks consistent with strategy. The acquisition of Fraser Island assets and now the BI route further reduces asset concentration risks and dampens the early impacts of greenfield routes (Manly/Barangaroo and Perth/Rottnest Island). SLK represents one of the few listed plays in the surging tourism and nature-based tourism industries. INVESTMENT SUMMARY Year End: 30 June 2016 (A) 2017 (A) 2018 (E) 2019 (E) 2020 (E) Revenue $mn 177 201 215 289 307 EBITDA $mn 43.0 49.4 48.9 62.3 69.1 EBIT $mn 34.2 37.5 36.2 46.4 52.2 Reported Profit $mn 22.3 23.8 22.8 29.0 33.1 Adjusted Profit $mn 23.1 23.8 22.8 29.0 33.1 EPS (Reported) 23.4 23.5 22.3 28.4 32.4 EPS (Adjusted) 24.2 23.5 22.3 28.4 32.4 EPS Growth % 96.6-3.0-5.0 27.0 14.2 PER (Reported) x 19.0 18.9 19.9 15.7 13.7 PER (Adjusted) x 18.4 18.9 19.9 15.7 13.7 Dividend 12.0 14.0 14.5 17.5 19.5 Yield % 2.7 3.1 3.3 3.9 4.4 Franking % 100 100 100 100 100 Baillieu Holst Ltd ABN 74 006 519 393 www.baillieuholst.com.au Please read the disclaimer at the end of this report. Page 1
Financial summary SeaLink Travel Group Ltd Analyst: Nick Caley Rating: BUY Date: 29-June-2018 Price Target: $5.10 Share Price ($A): $4.45 Valuation: $5.09 Year End: 30 June Upside/(Downside): 15% Market Cap (A$m) $446 Risk: Medium EARNINGS FY16A FY17A FY18E FY19E FY20E EPS - Diluted - Reported 23.4 23.5 22.3 28.4 32.4 PROFIT & LOSS (A$mn) FY16A FY17A FY18E FY19E FY20E EPS - Diluted - Normalised 24.2 23.5 22.3 28.4 32.4 Operating Revenue 177.3 201.4 215.0 288.8 307.3 EPS Growth % 97% -3% -5% 27% 14% Interest Income 0.2 0.0 0.0 0.0 0.2 DPS - Ordinary 12.0 14.0 14.5 17.5 19.5 Total Revenue 177.5 201.4 215.1 288.8 307.4 DPS - Special 0.0 0.0 0.0 0.0 0.0 Total Cash Operating Expenses 134.2 152.0 166.2 226.4 238.1 DPS - Total 12.0 14.0 14.5 17.5 19.5 EBITDA 43.0 49.4 48.9 62.3 69.1 Franking % 100.0 100.0 100.0 100.0 100.0 Depreciation & Amortisation 8.8 11.9 12.7 15.9 16.9 Payout Ratio % - Ordinary 51% 60% 65% 62% 60% EBIT 34.2 37.5 36.2 46.4 52.2 VALUATION FY16A FY17A FY18E FY19E FY20E Interest Income 0.2 0.0 0.0 0.0 0.2 P/E (x) 18.4 18.9 19.9 15.7 13.7 Finance Costs 2.5 3.2 3.5 5.1 5.1 EV/EBIT (x) 13.9 12.5 15.2 11.7 10.1 Net Interest Expense 2.3 3.2 3.5 5.0 4.9 EV/EBITDA (x) 11.0 9.5 11.3 8.7 7.6 Net Profit Before Tax 32.0 34.3 32.8 41.4 47.3 Dividend Yield (%) - Ordinary 2.7% 3.1% 3.3% 3.9% 4.4% Income Tax Expense 9.6 10.5 10.0 12.4 14.2 Price/Book (x) 3.3 3.0 2.9 2.7 2.5 Net Profit After Tax - Reported 22.3 23.8 22.8 29.0 33.1 Price/NTA (x) 5.0 4.4 4.6 4.1 3.6 Normalisation Adjustments 0.8 0.0 0.0 0.0 0.0 GROWTH FY16A FY17A FY18E FY19E FY20E Net Profit After Tax - Normalised 23.1 23.8 22.8 29.0 33.1 Total Rev. Growth (% pcp) 59% 14% 7% 34% 6% Cash Op. Exp. Growth (% pcp) 44% 13% 9% 36% 5% BALANCE SHEET (A$mn) FY16A FY17A FY18E FY19E FY20E EBITDA Growth (% pcp) 135% 15% -1% 28% 11% Current Assets EBIT Growth (% pcp) 137% 10% -3% 28% 12% Cash 5.2 2.9 1.2 9.1 23.3 NPBT Growth (% pcp) 139% 7% -5% 26% 14% Receivables 15.0 10.3 16.0 23.6 21.9 NPAT Growth (% pcp) 139% 7% -4% 27% 14% Other Financial Assets 0.0 0.0 0.0 0.0 0.0 MARGINS & RETURNS FY16A FY17A FY18E FY19E FY20E Inventories 3.2 3.4 3.5 3.5 3.5 EBITDA Margin (%) 24% 25% 23% 22% 22% Other 1.8 2.0 1.8 1.8 1.8 EBIT Margin (%) 19% 19% 17% 16% 17% Total Current Assets 25.1 18.6 22.4 38.0 50.5 NPBT Margin (%) 18% 17% 15% 14% 15% Non Current Assets ROIC (%) 29% 25% 22% 28% 28% Property, Plant & Equipment 175.0 170.8 205.0 207.8 210.9 ROE (%) 20% 17% 15% 18% 19% Intangibles 47.7 46.2 58.4 58.4 58.4 ROA (%) 11% 10% 9% 10% 11% Other 4.7 3.9 3.9 3.9 3.9 Effective Tax Rate (%) 30% 31% 30% 30% 30% Total Non Current Assets 227.5 220.9 267.2 270.1 273.2 GEARING FY16A FY17A FY18E FY19E FY20E Total Assets 252.6 239.5 289.6 308.1 323.7 Net Debt (A$mn) 63 58 100 92 78 Current Liabilities Net Debt/Equity (%) 46% 39% 64% 55% 43% Payables 9.8 8.6 10.7 13.9 14.5 Int. Cover (x) - EBITDA/Net Int. 19.0 15.5 14.2 12.4 14.1 Unearned Revenue 5.0 5.5 6.9 8.9 9.4 SEGMENTAL FY16A FY17A FY18E FY19E FY20E Loans & Borrowings 2.9 3.1 2.8 2.8 2.8 Operating Revenue Other 24.3 10.1 7.5 7.5 7.5 SeaLink South Australia 65.1 67.5 68.5 72.6 76.3 Total Current Liabilities 41.9 27.2 27.9 33.1 34.3 Captain Cook Cruises 38.0 51.1 57.6 67.7 72.4 Non Current Liabilities SeaLink QLD/NT 74.3 82.9 89.0 145.3 154.0 Loans & Borrowings 65.2 58.1 98.8 98.8 98.8 Tasmania 0.0 0.0 0.0 3.2 4.6 Unearned Revenue 1.1 1.0 0.9 0.9 0.9 Corporate -0.1-0.1-0.1 0.0 0.0 Other 7.3 5.5 6.1 6.1 6.1 Total Operating Revenue 177.3 201.4 215.0 288.8 307.3 Total Current Liabilities 73.7 64.5 105.7 105.7 105.7 Total Liabilities 115.6 91.8 133.7 138.8 140.0 EBITDA Contributed Capital 95.6 95.6 95.6 95.6 95.6 SeaLink South Australia 15.0 17.0 17.1 18.9 20.6 Reserves -0.2 0.3 0.5 0.5 0.5 Captain Cook Cruises 3.2 5.0 4.5 7.1 8.3 Retained Earnings 41.6 51.8 59.9 73.2 87.6 SeaLink QLD/NT 24.8 27.4 27.3 35.6 38.9 Total Equity 137.0 147.7 156.0 169.2 183.6 Tasmania 0.0 0.0 0.0 0.7 1.3 EBITDA 43.0 49.4 48.9 62.3 69.1 CASH FLOW (A$mn) FY16A FY17A FY18E FY19E FY20E Cash at Start 2.3 5.2 2.9 1.2 9.1 EBITDA Margins Cash Flow from Ops 32.1 25.7 31.4 42.4 52.9 SeaLink South Australia 23% 25% 25% 26% 27% Cash Flow From Investing -122.1-6.1-59.0-18.8-20.0 Captain Cook Cruises 8% 10% 8% 10% 11% Cash Flow From Financing 93.0-21.9 25.8-15.7-18.7 SeaLink QLD/NT 33% 33% 31% 25% 25% Net Cash Flow 2.9-2.3-1.7 8.0 14.2 Tasmania n/a n/a n/a 23% 28% Cash At End 5.2 2.9 1.2 9.1 23.3 Group 24% 25% 23% 22% 22% Baillieu Holst Ltd ABN 74 006 519 393 www.baillieuholst.com.au Please read the disclaimer at the end of this report. Page 2
FIG.1: FERRY ROUTE KETTERING TO BRUNY ISLAND Source: Google Maps FIG.2: BRUNY ISLAND VISITATION (000) 160.0 147.8 140.0 129.8 120.0 100.0 101.2 80.0 60.0 61.4 75.5 75.2 69.0 71.8 77.4 40.0 20.0 0.0 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2014/15 2015/16 2016/17 Source: Tourism Tasmania Baillieu Holst Ltd ABN 74 006 519 393 www.baillieuholst.com.au Please read the disclaimer at the end of this report. Page 3
FIG.3: MV MIRAMBEENA Source: ABC News Baillieu Holst Ltd ABN 74 006 519 393 www.baillieuholst.com.au Please read the disclaimer at the end of this report. Page 4
FIG.4: DIAGRAM OF PROPOSED FERRY TO BE OPERATED TO BRUNY ISLAND BY SLK Source: ABC News FIG.5: BRUNY ISLAND CURRENT FERRY FARE SCHEDULE Source: Bruny Island Ferry Co Baillieu Holst Ltd ABN 74 006 519 393 www.baillieuholst.com.au Please read the disclaimer at the end of this report. Page 5
Appendix FIG.6: LONG TERM MOMENTUM INDICATORS Source: Iress FIG.7: SHORT TERM MOMENTUM INDICATORS Source: Iress Baillieu Holst Ltd ABN 74 006 519 393 www.baillieuholst.com.au Please read the disclaimer at the end of this report. Page 6
This document has been prepared and issued by: Baillieu Holst Ltd ABN 74 006 519 393 Australian Financial Service Licence No. 245421 Participant of ASX Group Participant of NSX Ltd Analysts stock ratings are defined as follows: Buy: The stock s total return is expected to increase by at least 10-15 percent from the current share price over the next 12 months. Hold: The stock s total return is expected to trade within a range of ±10-15 percent from the current share price over the next 12 months. Sell: The stock s total return is expected to decrease by at least 10-15 percent from the current share price over the next 12 months. Baillieu Holst Analysts stock ratings distribution as of 05 June 2018: Buy: 65% Hold: 34% Sell: 1% Disclosure of potential interest and disclaimer: Baillieu Holst Ltd (Baillieu Holst) and/or its associates may receive commissions, calculated at normal client rates, from transactions involving securities of the companies mentioned herein and may hold interests in securities of the companies mentioned herein from time to time. Your adviser will earn a commission of up to 55% of any brokerage resulting from any transactions you may undertake as a result of this advice. When we provide advice to you, it is based on the information you have provided to us about your personal circumstances, financial objectives and needs. If you wish to rely on our advice, it is important that you inform us of any changes to your personal investment needs, objectives and financial circumstances. If you do not provide us with the relevant information (including updated information) regarding your investment needs, objectives and financial circumstances, our advice may be based on inaccurate information, and you will need to consider whether the advice is suitable to you given your personal investment needs, objectives and financial circumstances. Please do not hesitate to contact our offices if you need to update your information held with us. Please be assured that we keep your information strictly confidential. No representation, warranty or undertaking is given or made in relation to the accuracy of information contained in this advice, such advice being based solely on public information which has not been verified by Baillieu Holst Ltd. Save for any statutory liability that cannot be excluded, Baillieu Holst Ltd and its employees and agents shall not be liable (whether in negligence or otherwise) for any error or inaccuracy in, or omission from, this advice or any resulting loss suffered by the recipient or any other person. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Information, opinions and estimates contained in this report reflect a judgment at its original date of publication and are subject to change without notice. The price, value of and income from any of the securities or financial instruments mentioned in this report can fall as well as rise. The value of securities and financial instruments is subject to exchange rate fluctuation that may have a positive or adverse effect on the price or income of such securities or financial instruments. Baillieu Holst Ltd assumes no obligation to update this advice or correct any inaccuracy which may become apparent after it is given. Baillieu Holst Ltd ABN 74 006 519 393 Australian Financial Service Licence No. 245421 Participant of ASX Group Participant of NSX Ltd www.baillieuholst.com.au Melbourne (Head Office) Address Level 26, 360 Collins Street Melbourne, VIC 3000 Australia Postal PO Box 48, Collins Street West Melbourne, VIC 8007 Australia Phone +61 3 9602 9222 Facsimile +61 3 9602 2350 Email melbourne@baillieuholst.com.au Adelaide Office Address Ground Floor, 226 Greenhill Road, Eastwood SA 5063 Postal PO Box 171 Fullarton SA 5063 Phone +61 8 7074 8400 Facsimile +61 8 8362 3942 Email adelaide@baillieuholst.com.au Bendigo Office Address Level 1, 10-16 Forest Street Bendigo, VIC 3550 Postal PO Box 84 Bendigo, VIC 3552 Phone +61 3 4433 3400 Facsimile +61 3 4433 3430 Email bendigo@baillieuholst.com.au Geelong Office Address 16 Aberdeen Street Geelong West Vic 3218 Postal PO Box 364 Geelong Vic 3220 Australia Phone +61 3 5229 4637 Facsimile +61 3 4229 4142 Email geelong@baillieuholst.com.au Gold Coast Office Address Suite 202 Level 2, Eastside Building 6 Waterfront Place, Robina QLD 4226 Phone +61 7 5628 2670 Facsimile +61 7 5677 0258 Email goldcoast@baillieuholst.com.au Newcastle Office Address Level 1, 120 Darby Street Cooks Hill, NSW 2300 Australia Postal PO Box 111 The Junction, NSW 2291 Australia Phone +61 2 4037 3500 Facsimile +61 2 4037 3511 Email newcastle@baillieuholst.com.au Perth Office Address Level 9, 216 St Georges Terrace Perth WA 6000 Australia Postal PO Box 7662, Cloisters Square Perth, WA 6850 Australia Phone +61 8 6141 9450 Facsimile +61 8 6141 9499 Email perth@baillieuholst.com.au Sydney Office Address Level 40, 259 George Street Sydney, NSW 2000 Australia Postal PO Box R1797 Royal Exchange, NSW 1225 Australia Phone +61 2 9250 8900 Facsimile +61 2 9247 4092 Email sydney@baillieuholst.com.au Baillieu Holst Ltd ABN 74 006 519 393 www.baillieuholst.com.au Page 7