SeaLink Travel Group Limited (ASX: SLK) is a multi-modal transport and tourism operator. Sea Link is Australia’s largest integrated land and maritime provider with established international operations. SeaLink has a market capitalisation of A$609 million.
Update on Coronavirus
The coronavirus (COVID-19) was first reported from the Wuhan province in China on 31 December 2019. The World Health Organisation data shows a total of confirmed cases of 372,757 and 16,231 deaths globally. As of today (25 March 2020), there have been over 2,136 confirmed cases and 8 have died of COVID-19 in Australia.
Update on share price
In the last month, SeaLink’s share price has fallen by 32% and is currently trading at A$2.84. The downward trend is due to the suppression of tourism caused by the spread of COVID-19.
What is SeaLink’s response to COVID-19
Due to the spread of COVID-19, it is apparent that domestic and international tourism demand is significantly weakening. SeaLink management noted in their HY20 report that the combined impact of the bushfires and coronavirus on second half FY20 EBITDA was a reduction estimated at A$5 million on its tourism and marine businesses, with no impact on the Transit Systems Group business. However, SeaLink announced today (25 March 2020), that given the level of economic uncertainty surrounding COVID-19, SeaLink will suspend its FY20 earnings guidance.
SeaLink is taking action to implement cut costing measures and scale back tourism and services, where necessary. SeaLink announced a range of response initiatives including suspending tourism dining and sightseeing operations in South Australia and the Sydney Habour, targeted scale back measures, cost reduction strategies in all businesses and deferring of all non-essential projects and capital expenditure.
What is the outlook for SeaLink?
Given the uncertainly of the situation facing the tourism market and difficulty forecasting the impact on second-half earnings, especially now since SeaLink suspends its FY20 earnings guidance. However, SeaLink has a diversified business model with approximately 85% of its current revenue being derived from long-term government contracted sources. Furthermore, public transport is considered an ‘essential service’ and it is forecasted that public transport will continue to operate throughout the COVID-19 pandemic. Needlessly to say, SeaLink’s advises there are no material operational constraints in providing its services due to the gross cost nature of the long-term government contracts it holds.
With the recent acquisition of the Transit Systems Groups in January 2020, SeaLink has exposure to long-term government contracts across Australia and internationally. In March 2020, Torrens Transit (a subsidiary of SeaLink) signed new 8+2 year contracts in Adelaide with total estimated revenue of A$1.45 billion. With a strong balance sheet and a new partially drawn five-year debt facility, SeaLink has a business model to sustain throughout the pandemic and possesses government contracts to boost earnings.
This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
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