Sealink Travel Group Limited (ASX: SLK) is battling slower growth in inbound international tourism and a subdued domestic travel market.
What Does Sealink Do?
Sealink is a provider of tourism and transport services via its fleet of ferries. It operates the popular Captain Cook cruises on Sydney Harbour, Kangaroo Island ferries in South Australia, Rottnest Island ferries in Western Australia and a number of services in Queensland.
Trading update
In an announcement to the market yesterday, Sealink’s management said they expected underlying net profit after tax for the 2019 financial year to be in the range of $22 million to $24 million. This follows on from an underlying net profit of $22.1 million last financial year. They also announced the sale of two of their company-owned vessels for a combined $9.9 million.
Proceeds from the sale of the two vessels will be applied to reduce the net debt position of the company whilst positioning it for future acquisition opportunities.
On a positive note, Sealink’s management says there are early signs of an improved trading environment with the performance of its dining and sightseeing operations on Sydney Harbour during the Vivid festival tracking ahead of last year.
Despite giving a more positive outlook going forward, however, not all investors were impressed with the update as shares in Sealink closed the day down slightly at $3.70.
Highly Leveraged To Tourist Numbers
Sealink operates vessels in a number of Australia’s key tourist locations and is therefore highly leveraged towards the tourism sector. A falling Aussie Dollar (AUDUSD) benefits Sealink as it makes Australia a more affordable holiday destination for international visitors whilst simultaneously incentivizing Australians to holiday domestically.
A number of businesses dependent upon a strong Queensland tourist sector have for some time been reporting challenging conditions due to a weakening local economy and inclement weather in the first half of 2019.
Adventure tourism company Experience Co Ltd (ASX: EXP) and Cairns casino operator Reef Casino Trust (ASX: RCT) have both blamed weaker than expected revenue numbers on the softening Queensland tourism sector. A number of Sealink’s vessels are located in Queensland including Brisbane’s City Cat and ferries on the popular holiday destination of Fraser Island. Management will be desperately hoping for better weather in the second half of the year and an acceleration in the growth of inbound tourists.
Would I buy Sealink Shares Now?
Sealink operates some quality assets in key locations around the country and some of the significant headwinds they have been facing are likely to be temporary in nature. However, stuttering economic growth leaves me concerned for the short to medium term prospects of a company heavily reliant on strong discretionary spending.
As a result, I will be watching Sealink with great interest and wouldn’t rule out buying shares if I saw signs of a strong lift in the Australian tourism sector.
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Disclosure: At the time of publishing, Luke owns shares in Experience Co Ltd.
