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SLK

Why SeaLink Travel Group Went Up 4.3% Today?

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 (ASX: SLK) is a tourism and transport company operating in the same industry as companies like Flight Centre and STA. One thing that distinguishes their business model, however, is the company’s focus on operating the end travel service, as opposed to simply buying products like airfares in bulk and reselling them to consumers at a higher price.

SeaLink Travel Group - Report
Captain Cook Cruises rallied strongly on the back of the positively received acquisition of Transit Systems.

The company is rallying off the back of their recent acquisition of Transit Systems, which helps them to successfully expand into offshore markets. With prominent Aussie international expansion success stories like Afterpay in the market, investors are viewing companies that make the choice to expand overseas much more favourably.

Sealink’s recent acquisition of Transit Systems will be funded by a mix of cash that the business already has, and an underwritten equity placement. They are raising $154m from the offer, out of the $635m that they will need to fund the acquisition. Since they are mostly using their underutilised balance sheet to fund the acquisition, the market warmed to the deal since investors could upgrade earnings expectations on the news, since the deal is widely expected to be EPS accretive.

The company controls the Captain Cook Cruises brand, which means they can realise all the profits from successful marketing efforts. This puts them a world apart from other companies in the travel industry, allowing them to obtain large market shares and a degree of pricing power in niche markets like cruises on Sydney Harbour. This allows them to maintain margins of around 10%. In light of strong cash flow conversion, this is indicative of the business’s moderate earnings quality, which is why the market prices it on 21.9x 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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