Stock in Focus: Tourism Holdings (THL.NZX)
Tourism Holdings shares fell -9.4% after holding its investor day, which held its 2023 earnings unchanged at more than $48m (or $75m on pro-forma including full-year contribution of Apollo Tourism & Leisure). The 2023/2024 indicates that international volumes bookings are strong, while domestic demand is starting to tail off. While yields are strong at the moment, they anticipate some consolidation in pricing and a full recovery to pre-covid tourism take longer than expected as well as a tougher economic climate putting a damper on things.
Overall, it was a reminder that while tourism spending is strong it won’t be immune to the economic slowdown. Given bookings are still holding up and margins are strong we rate Tourism Holdings as our top tourism pick and a better option versus Air NZ, Qantas and Auckland International Airport. Remain BUY rated on THL.
New Zealand
The New Zealand market (NZX 50, -0.4%) was down yesterday as another extreme weather event in Auckland put a damper on the local market.
Tower which would have been most affected remained flat a day after falling -5.7% when it downgraded its profit guidance for the 2023 financial year due to costs associated with Cyclone Gabrielle that hit in February – we could see one more earnings hit so stay away from the stock for now.
Misc
Hearing that Palantir is in New Zealand taking meetings – we wonder with whom, and for what? Also noting Amazon’s cloud centre in Auckland goes live today – the $1B investment in NZ has been done discreetly; though we hear there is a launch on Auckland’s Viaduct later today — more AMZN investment in NZ to come?
Australia
The Australian market (ASX 200, -0.2%) traded lower weighed down by real estate and mining stocks.
Financials were in the green, CBA revealing its quarterly update, cash net profit after tax rose +10% from last year to $2.6 billion, as lending volumes climbed slightly with the result mostly in line with expectations. Australia’s Budget saw a significant upgrade to the 2022/23 outcome due to a stronger economic recovery and higher commodity prices – resulting in a $100 billion surplus. The $14.6 billion cost-of-living support package is relatively modest and hope it works as intended though we note this feels awfully like QE.
US
Microsoft hires a heavyweight
We’ve been watching Microsoft and Activision’s tussle with the UK’s Competition and Markets Authority over its acquisition of Activision-Blizzard with interest. As we wrote, it’s kind of a “heads I win, tails I win” situation for Activision-Blizzard, which has bounced back from the depths of scandal last year with extremely strong bookings largely due to its Call of Duty franchise. We were unsure how they would respond. Here we have an indication of what Activision intends – they hired Lord David Pannick KC, one of the UK’s heavyweight lawyers, to appeal against the UK. Hiring Pannick is a little like hiring Mike Tyson for a boxing fight – they mean business. It’s a sign that ATVI really wants the deal to go ahead – $95 a share looks like a pretty good exit offer for a lot of senior executives (watchers of Succession might draw the analogy to how badly Frank & Gerri want Waystar Royco to be acquired by GoJo – they want that golden parachute). Pannick’s former roster of clients include Queen Elizabeth II, if that’s a sign of how seriously ATVI is taking it.
This follows Microsoft hiring Daniel Beard KC to appeal its side of the deal in the UK courts – he isn’t quite Lord Pannick, but he’s represented Alphabet and Intel in both the UK and EU – he’s no slouch. We feel like the deal is far from done – Microsoft’s lobbying powers are (famously) capacious and widespread – watching it with interest.
Manchester United
Charlie Munger calls the kind of arbitrage we’re interested in on the ATVI deal and Manchester United’s potential acquisition “Jewish treasury bills” (coined by Ben Graham, himself a Jew). They are situations which have a high likelihood of working out and paying a fixed amount on top. MANU is more complicated, of course – the Glazers bought the football team in a debt-fuelled leveraged buyout and the company is still employing debt liberally; last year they borrowed 40M GPD to pay out a dividend; the bulk of that dividend went straight to the Glazers.
The bidding process for the team has been drawn out. There are two main contenders: Jim Ratcliffe, who owns INEOS, and Sheikh Jassim bin Hamad Al Than, who has enough money to pay all cash for the club and commit about $1B to restoring the infrastructure of the club. Ratcliffe’s buyout would be a mix of debt and cash, and leave the Glazer’s with minority ownership. We think it’s obvious what the preferable situation is, and Raine Group, who are overseeing the bidding process, is favouring the Qatari bid.
Continued Glazer ownership of the club is untenable – they literally cannot afford to keep owning it. An all-cash deal gets them out of it and satisfies shareholders with at least a $28 per share bid price. Currently MANU is a 5% in our US Model Portfolio (bulk still sitting in cash).
Airbnb sees some weakness Seeing some weakness in the travel sector – Airbnb sees a slow down in bookings for Q2 – projecting revenue to be $2.35-2.45B. We wonder if this is the start of something bigger – a wider-spread consumer slow-down in spending. Competitor BookingHoldings (buy-rated) forecasts 20% growth in bookings next quarter, about a 5% decline from growth this quarter. We keep seeing data that suggests the consumer keeps spending – we have been banging on that drum for a while – but perhaps this is finally a sign that slow-down is happening. Part of Airbnb’s unfavorable projections is due to the pent-up “revenge” spending of Q2 2022. Airbnb’s results weren’t all bad – NPAT of $118M on the back of $1.8B in sales. Preference given to Booking Holdings – company is buying back up to $20B of stock and trades at 16x earnings vs. Airbnb’s ~28x.