Changing Outlook for 2 NZX listed Travel and Tourism Related Stocks - Tourism Holdings, Serko

  • April 07, 2020 12:00 PM NZST
  • Team Kalkine
Changing Outlook for 2 NZX listed Travel and Tourism Related Stocks - Tourism Holdings, Serko

Sometimes, a gust of wind is enough to change the direction of the birds soaring high in the sky. While humans different from the other creatures are known to strategise and plan long beforehand, some unformidable circumstances manage to elucidate similar instantaneous response. When a reckoning force stands against human in its colossal form, the normal course of actions is often shrugged off as the world moves to ensure sustainability and balance.

Driven by similar unnerving circumstances due to Covid-19, the world’s peace and stability stay at the verge of annihilation. Having affected more than a million people worldwide, the healthcare calamity sure has taken one of the gruesome forms as it shows no signs of subsiding. Amidst the growing transmission of the infection, a majority of the counties have imposed travel bans, social distancing and lockdown to keep a check on the increasing rate of coronavirus infection.

The panic surging worldwide coupled with the extreme restlessness has caused a massive downfall in the major world markets. The closure of the business operations provides another enormous blow to the economies. Under such market upheaval, a majority of the sectors have received their share of loss. However, the travel sector is the one which seems entirely famished. Amidst the travel bans and the international travel bearing the significant blame of infection growth, the travel industry appears hard hit by the coronavirus.

In the growing tougher economic scenario, while the government offer varying relief and subsidy packages, the travel and tourism companies adopt a conservative approach to ensure their long-term survival.

Let us deep dive and look at the changing outlook for the two NZX listed Travel and Tourism related stocks.

Tourism Holdings Limited (NZX: THL)

The premiere tourism company of New Zealand, Tourism Holdings Limited (NZX: THL) provides the opportunity for independent tourism through the sale or rent of holiday vehicles such as motorhomes, campervan, etc. The company, over the past years with the aid of the different joint ventures, is directed at enhancing the quality of the travel.

With the upsurge in the number of cases driving travel bans and lockdowns, the company has reviewed its previous $24 million NPAT guidance. Regarding the current state of uncertainty in the operative scenario, the company has decided not to provide any financial guidance for the remainder of the year.

Cost Cutting approach

Amidst the hovering uncertainty, travel industry is plagued by the fear of the impending doom. Under such circumstances, Tourism Holdings has taken a series of decisions that would align the business with the growing turbulent scenario. As a part of its conservative approach, the company has cancelled the FY20 interim dividend worth 10 cents per share which it announced on 28 February 2020.

Along with the pandemic containment measures, the company has adopted other conservative approaches. For the next four months, the directors and the chief executives have reduced their fees or salary by 50%. Likewise, the executive team has reduced the salary by 30% for the same period.

The company is utilising a cautious financial approach to reduce expenditures. All uncommitted expenditures in fleet capital have been cancelled, whereas the committed expenditures where possible are reduced with suppliers.

Meanwhile, the company is undertaking the cost-out exercise for other uncommitted expenditures. It enacted significant employment cost reduction, including role reduction.

A significant number of employees have either left the business, furloughed or placed on discretionary leave. Over the following twelve weeks, around 60% of labour expense reduction is expected by the company.

Waitomo Group and Kiwi Experience operations have been temporarily closed. Tourism holdings entered into an agreement for undertaking a managed exit from Togo, which is a joint venture with Thor Industries Inc. The move taken in favour of the digital strategy would provide payment of US$6 million from Thor, while having no further investment obligation into Togo.

Stock Performance

AT NZST 1:25 P.M on 7 April 2020, THL stock was trading at $1.060, up by 10.42% intraday. THL has the market capitalisation $156.896 million.

Serko Limited (NZX: SKO)

The business travel solutions provider, Serko Limited (NZX: SKO) has acknowledged several business implications associated with the medical emergency. Covid-19 has caused business travel disruption, leading to various border control restrictions on corporate travel. In response to the uncertainty created in the market conditions, Serko has withdrawn its guidance.

Cost Reducing Operations

Market update from the company highlighted the reduction in the revenue of the company following the travel ban. In response, Serko has taken a series of measures all centric at reducing the cost. It is scaling down operating expenses like the cost of sales and hosting, and removing non-essential expenditure in proportion to lower transaction volumes and reduced customer activity. The company has also hinted regarding further review of the cost and making necessary reductions.

While it retains its core development team, Serko has achieved its cost savings through rationalising non-essential staff and reducing external contractors. For supporting the employee salary costs, the company is also pursuing various government subsidy programs in New Zealand, US and Australia.

A strong focus is retained on the people’s wellbeing, and safety as the team of the company has adapted well to remote working involving minimal disruption to working practices.

The company highlighted that it neither it has any debt facilities, nor it finds necessary to obtain any debt funding. Serko’s CEO, Mr Grafton, has previously stressed that following the successful capital raising, which it undertook last year, the company has a strong cash balance.

Stock performance

On 7 April 2020 (AT NZST 1:23 P.M), SKO was trading at $2.130 per share, up by 3.90% intraday.

Amidst soaring challenges faced by travel industry, key to survival includes cost reductions, strategising business plans, managing external obligations, maintaining salary and health of employees.


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