industry has dropped SA from its
marketing because of the unfriendly
visa regulations. He added that
Chinese tourists often travelled at
short notice and it was important
for them to get visas quickly. In
addition, competitor countries
such as Zimbabwe offered Chinese
travellers visas on arrival. As a
result, inbound tourism is expected
to be subdued in the interim.
It’s not all doom and gloom for
Cullinan which has diversified
into financial services through
acquisitions. Its financial services
division registered sixfold growth
and contributed 12% towards group
operating income, up from just
1.7% previously.
a subdued outlook coupled with
Eskom blackouts and the promise
of further electricity tariff hikes. It’s
not looking good for both corporate
and household discretionary
income, which is responsible for
feeding outbound tourism.
We have revised our growth
forecast in light of these
developments. Although our
valuation suggests the stock is
trading within its full valuation
range, there is real downside risk.
Investors should also note that the
counter is characterised by thin
trading as less than 1% is in the
hands of retail investors, which
limits price discovery.
Group revenue growth though
was below par, inching up 3% to
R456m. Although financial services
revenue more than doubled, overall
group revenue was suppressed by
the travel and tourism division –
which provides the lion’s share of
group revenue. It declined by more
than 8%. Operating profit fell 6.3%
to R51.1m, despite the financial
services segment growing operating
income more than 600% to R6.3m.
Headline earnings fell 8.1% to 5.02c/
share and the dividend was halved
to 1c/share.
Bull Factors
The stock traded at lofty valuations
for the better part of last year and
only started coming down towards
the end of the first quarter of 2015.
We suspect the market rerated the
share when it became apparent
that the government was not going
to back down from its harsh visa
policy. The stock actually advanced
after these results were released.
•
Apart from financial services, the
boating division also impressed,
benefiting from the weakening
rand. And management is optimistic
about outbound tourism, which has
performed remarkably well in this
poor economic environment. But
some caution is needed here given
16
ISSUE 4 – JULY 2015
•
•
•
Established brands and supply
chain networks in the tour
operator space
Diversified business mix
protects it from exchange
rate swings
Comfortable gearing profile
reduces risk and supports
balance sheet gearing
Bear Factors
•
•
Visa regulations a threat to
inbound tourism growth
Uneven global economic
recovery poses a threat to
tourism & leisure sector
Low barriers to entry
Nature of business: A holding
company with operations in
tourism, marine and financial
services. The group operates four
major tourism segments: tour
operating, retail travel, coach
charter & touring and marine &
boating. Brands include Thompsons
Holidays, Hylton Ross Tours and
Pentravel. Glacier Enterprises
& Chester finance fall under
Cullinan Financial Services which
provides bridging, marine and
project finance.
Disclosures: The analyst has
no financial exposure to the
instrument discussed. The opinion
represents his true view.■