Rally Reversal | Tourism Holdings Update

14 June 2020

Global markets plunged overnight, with the US market (S&P 500 Index -5.9%) suffering its biggest one-day pull-back in three months. Investors sentiment is getting retested as they reacted to renewed fears of a pandemic resurgence in certain US states and digested sour economic forecasts from the US Federal Reserve. There is also likely some profit taking given the recent rally. This was very evident in a sharp reversal of sectors which had made the biggest gains in recent weeks – such as tourism related stocks, energy, and financials. 

In saying that, selling was broad based as pandemic fears were back on the radar, with deaths of Americans from COVID-19 potentially set to reach 200,000 in September. This would be a grim result of the United States economy potentially re-opening before getting growth of new cases down to a controllable level, according to a leading US health expert.

 

​Tourism Holding Limited (THL:NZX)

Tourism Holding shares were down yesterday but held up better than its travel and tourism related peers after providing a general market update. THL announced improved domestic rental booking activity as lockdown restrictions begin to ease across all operating segments.

Vehicle sales were strong particularly in the US over May (beating expectations) with a view that travelling within a campervan is a much safer alternative to flying (given covodi-19 is still a major issue). However, margins are likely to remain under pressure over the near-term, and recent operating losses are expected to push net debt up by ~$30m to $165m to $175m, versus pre-covid-19  pandemic (February 2020) expectations of ~$135m. Despite its recent rally we believe THL are still not in the clear yet, but a boost in domestic demand and Trans-Tasman bubble should prevent any heavy near-term cash burn from here on out.

We remain HOLD rated on THL given they are more reliant on international travellers.

 

   
Australia & New Zealand Market Movers

The Australian market (ASX200 -3.1%) was down  on Thursday reporting its worst session in more than a month as investors returned to more defensive positions after the pace of the global recovery was checked by the US Federal Reserve confidence. The banks were hit hard, based on the US Fed's commentary to keep interest rates near zero for another two-years with a slower than anticipated recovery for the US economy. The energy sector fared the worst as oil prices continue to tumble.

Online retailer Kogan managed to defy market moves, with its shares up 6.9% after it raised $100m from investors in an oversubscribed share placement.

The New Zealand market was lower yesterday (NZX 50 Index -0.9%) as the US Federal Reserve's pessimistic economic outlook subdued overly optimistic investor confidence. Air New Zealand led the local market lower, plunging -10.8% as speculative investors who had piled into the stock appeared to exit just as quickly, with many taking profits. There is also speculation Air New Zealand is gearing up to raise capital.

Other companies tied to economic recovery were also under pressure (which were the ones which have made the strongest gains over the last month) such as Kathmandu down -9.2%, and Sky City down -4.6%

 

3 Things Markets Will be Watching this Week

  1. ​​​Once again, US-China trade tensions and covid-19 news-flow will remain top of mind.
  2. A decision by the US Federal Reserve will be made this week. 
  3. Closer to home, Ryman Healthcare will release its full earnings on Friday while an AGM will be held by Stockland.

 

Have a Great Day,
 

Team

Global markets plunged overnight, with the US market (S&P 500 Index -5.9%) suffering its biggest one-day pull-back in three months. There is also likely some profit taking given the recent rally. This was very evident in a sharp reversal of sectors which

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