Despite the coronavirus threat, Citi still thinks Crown shares offer good value as issues like health scares, bushfires, and regulatory scrutiny are likely short-term problems disguising long-term value. The analysts flag how peaking capex commitments for Crown Sydney in financial year 2020 have hurt sentiment, as investors are focused on short-term free cash low and dividends.
Once Crown Sydney is operational in financial year 2023, Citi is tipping Crown shares to offer a free cashflow yield of 7.4 per cent based on material declines in capex and the rise in operating cash profits from the development. The analysts argue the shares are worth $20.16 today in a bullish scenario, where Citi’s forecasts are met and investors drive the free cashflow yield on Crown shares down to their historical levels – around 4 per cent in financial year 2023.
Crown and Star are due to report half-year results on February 19 and 20. Analysts will hone in on any trading update or outlook statement given the travel ban and its uncertain length or impact.
Broker UBS is tipping Crown and Star among companies at risk of delivering negative outlook surprises on falling visitor numbers and VIP turnover.
UBS is tipping large-cap resources companies BHP Billiton and Fortescue as superior bets on the potential for better-than-expected dividends, although resources businesses are exposed to slowing Chinese industrial activity via lower commodity prices.
Tourism and travel stocks hit
Other tourism businesses being marked down heavily over 2020 include SeaLink, and Experience Co, alongside hotelier Event Hospitality.
SeaLink operates passenger ferries, Captain Cook Cruises, and other tourist cruises on Sydney Harbour, with the potential for missing Chinese visitors lowering its share price 13 per cent in 2020.
It also operates the Fraser Island ferry in Queensland and bushfire hit Kangaroo Island ferry in South Australia, where it also has properties badly affected by the fires.
SeaLink ferries to Kangaroo Island ran longer hours to help fight the bushfires.
In a similar way to airlines, the ferry operator has relatively fixed operating timetables and costs (diesel fuel and crew) that cannot be reduced if passenger numbers drop off.
Shares in online travel agency Webjet are down 15 per cent in 2020 as WebBeds its business-to-business division that acts as a digital middle-man between hotels and travel agencies is threatened by the travel slowdown. In particular Chinese holidaymakers in all-inclusive budget tour groups are a key growth market for WebBeds in supplying hotel inventory.
The corporate travel sector has also been hit with Flight Centre and Corporate Travel Management shares down 12 and 15 per cent in 2020. Short sellers continue to bet heavily on Corporate Travel’s shares falling, although it reported the coronavirus’ impact on its operations was “minor” as at January 29.
Flight Centre booked more than $1 billion in total transaction value in Asia over financial year 2019. Flight bans across the region will flow through into the second half of financial year 2020 for it and Corporate Travel.
Elsewhere shares in Great Barrier Reef tour operator, helicopter, and skydive activity specialist Experience Co are down 20 per cent in 2020, and 77 per cent since December 2017. The adventure travel operator’s hopes a falling Australian dollar since 2012 would stoke the tourist economy in Far North Queensland have not materialised.
Mr Bassanese warns policy responses from the central bank or government to prop up the coronavirus hit Australian economy might be insufficient. He thinks there’s a 30 to 40 per cent chance Australia has its first recession since 1991, as defined by two consecutive quarters of negative growth, over the first half of 2020.
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