Sealink Travel Group Limited (ASX: SLK) shares fell 3% yesterday after the company delivered an uninspiring financial result.
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.
Financial Results
Sealink reported net profit after tax (NPAT) of $21.5 million and underlying profit after tax of $23.4 million. Sealink had previously given guidance for an underlying net profit of between $22 million and $24 million so this result was in line with market expectations.
The acquisitions of Kingfisher Bay Resort Group and the new Bruny Island ferry service helped to boost sales to an all time high of $248.8 million, 19.5% higher than FY18.
The South Australian operating performance was dragged down by lower revenues from the PS Murray Princess which provides cruises up the famous Murray River in northern Victoria.
Sealink’s Captain Cook cruises, which operate in New South Wales and Western Australia, also saw a 3.3% decline in sales revenue to $53.4 million. Management blamed softening international tourism and a subdued economic environment.
After conducting a strategic review into the Sydney Harbour operations, management decided to cancel the Manly to Barangaroo ferry service, effective immediately. The vessels in question are expected to be successfully redeployed to other services.
In Queensland, the company reported an 8.6% decline in underlying earnings before interest and tax. This was primarily due to the loss of third-party leases over two Capricornian vessels.
The Fraser Island operations performed strongly with sales up 3% to $54.1 million which helped to lift earnings before interest, tax, depreciation and amortisation (EBITDA) to $8.1 million.
Sealink announced a final dividend of 8.5 cents per share, bringing the full-year dividend to 15 cents. Based on the closing price Sealink now trades on a fully franked dividend yield of 4.3%.
Sealink’s Future Is Looking…
Sealink said an announcement regarding a new CEO is imminent and will be made as soon as possible. This will help to provide stability and a platform from which to build in the coming year.
Whilst no specific profit guidance was given management expects to deliver underlying profit growth in FY20 led by improved profitability in its Sydney operations following on from the strategic review.
If we assume moderate profit growth of 4% over the next 12 months, Sealink shares are currently trading at 16x FY20 profit. On face value, this appears to be reasonable. However, it’s important to remember that Sealink has a heavy reliance on tourism.
Indeed, Sealink is a company that will likely suffer greatly should we experience worsening economic conditions.
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At the time of publishing, Luke has no financial interest in any companies mentioned.
