Forum Archive Index - January 2001

["Peter Maiden" <pmaiden@xtra.co.nz>]

It is interesting to note that THL was selected by one of the brokers in the Herald tips for 2001. THL also seems to crop up quite often in chatters selections as well.

 

THL is an interesting share.

 

The annual average shareholder return over the last 10 years (to June 00 according to a LEK Consulting report) is 27.7%. The last 5 years a negative 1.5% and the last 3 years 20%. This reflects price movements from under $1 10 years ago to a high of $5 about 1994 through to it's present level.

 

However performance over the last few years is more releveant since they have have a large capital injection and grown the business,

 

In the last two years the THL price has gone from about 152 in Dec 1998 to 350 and back to the current 190. In that rollercoaster ride there has not been any real price levels of sustained support for the share. On the way up there were signs of sustained support at 175 and 260 while on the way down at 260 again. However these price  levels were not sustained for long. The current price level has now been sustained for nearly 9 weeks.

 

Maybe the market has finally settled on the current price as to what the real valuation of THL should be. The company still expects to make $21M this year - if achieved then THL has a PE of about 9x future earnings.

 

The ups and downs in the THL price leads to a high calculated WACC (weighted average cost of capital) of 15.5% used in DCF valuations. THL is a 'risky' stock (compared to the overall market) and this no doubt is built into any serious valuation of the business.

 

THL has good brands and is in a period of great growth in revenues and earnings.

 

However the real problem the company has is in managing shareholder expectations. Since raising more capital and turning into a much larger comapny they have consistently fallen short of what was shown in their Investment Statements at that time.

 

Even when they announced a disappointing first quarter first quarter (which saw the price drop dramatically) the company was still pretty gung ho about the full year result. What will the market do if the signs that these new expectations will not be met? On the other hand if they are met will the price remain unchanged?

 

Prognosis (IMHO) - Large fixed costs so revenues are vital. In NZ these should grow as expected. OZ could be a problem for them. Still only achieving a 5% return on eguity and borrowings.

 

If things go to plan shareholders should benefit over the next year. If you believe in tourism as a good sector to be in and have confidence in the outcome of THL expectations most likely a good buy at todays price,

 

I don't have any and don't want to diversify into something new at the moment - considered more risky than what I have already have (no doubt these are risky as well)

 

Lets see what happens

 

Peter