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Sealink’s Response Initiatives To Coronavirus Outbreak

Stuart Lucy

Stuart Lucy is an Investment Specialist at the Australian Stock Report, and has gained exposure to funds management and investment banking throughout his career. He draws on this experience to provide macroeconomic commentary and actionable investment insights to clients. Stuart is responsible for writing reports, is involved in delivering Macrovue webinars and provides general advice to our members on portfolio construction. Stuart currently holds RG146 General and Securities qualifications.

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.

 

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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.


Disclaimer:


This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).
This article is provided for informational purpose only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law, we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.
ASR has no position in any of the stocks mentioned.

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