ATL announces two acquisitions
Apollo Tourism & Leisure has announced the acquisition of CanaDream and Kratzmanns.
CanaDream (CDN) is a Canadian-listed RV rental and sales company based in Canada, operating a fleet of c1,000 units and selling ex-rental vehicles. ATL previously had a 20% equity-accounted stake in CDN. Kratzmanns is an operator of four RV retail locations in South-East Queensland.
Both acquisitions are in line with management's strategy to expand its North American operations and domestic RV retail sales footprint. Total acquisition costs of cA$43.6m have been partially funded by a 4-for-17 entitlement offer at an issue price of $1.18.
FY17 upgraded (+5-10%); but FY18 investment costs flagged
ATL also upgraded its underlying FY17 prospectus NPAT forecast by 5-10%. Management commented that forward rental bookings are 'looking positive' in all geographies, with bookings for the upcoming US season tracking ahead of last year.
Given the growth of its Australian retail RV footprint, management expects its Brisbane manufacturing facility will move to larger premises in FY18. We forecast this will result in an incremental cA$1m operating cost impost in FY18 but will also support RV retail sales growth over the medium-term. In time, the existing Brisbane manufacturing facility will be exited which will see this incremental lease cost fall from FY19.
Running the acquisitions through our forecasts
In line with ATL's upgraded guidance, our FY17 NPAT forecast has increased by 7.1% (roughly the mid-point of the group's 5-10% upgrade range). Our EPS forecast increases by 5.1% due to additional shares on issue post the recent entitlement issue. We have also incorporated the acquisitions of Kratzmanns and the 100% stake in CanaDream from August 2017 into our model (vs 20% equity accounted stake previously). We have also rolled through an additional A$1.0m of lease costs relating to the new Brisbane manufacturing facility (which we have not assumed previously as it has only just recently been announced).
The above culminates in our underlying EPS forecasts changing by 5.1% in FY17, 1.1% in FY18 and 0% in FY19. Stripping out the extra A$1m (pre-tax) of leasing costs, the actual accretion from CanaDream and Kratzmanns in FY18 would be c4.4%.
We increase our share price target due to deal accretion and a roll-forward to reflect FY18 earnings/multiples. Based on our new forecasts, ATL is trading on 12.4x FY18F PE, offering 18% EPS growth and a 4% yield. We believe these attractive fundamentals and further growth optionality offshore (in existing and new markets) will see the stock outperform further over the short-medium term. Key risks include: increased competition, seasonality, tourism-related shocks, P2P movement, FX, movement in fuel price and deterioration of general macro conditions.
We maintain our Add recommendation.
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Disclaimer(s): Morgans Corporate Limited was lead manager and underwriter to the share placement and rights issue for Apollo Tourism & Leisure Limited and received fees in this regard.
A Director of Morgans Financial Limited is a Director of Apollo Tourism & Leisure Group and will earn fees in this regard.
Analyst owns shares.
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