Adventure Travel Demand And Tourism Recovery Will Drive Long-Term Earnings Improvement

Catalysts

About Experience Co

Experience Co operates adventure and nature based tourism experiences across Australia and New Zealand, including skydiving, reef and marine tours, treetop attractions and immersive lodge stays.

What are the underlying business or industry changes driving this perspective?

• Ongoing recovery and expected growth in international visitation to Australia and New Zealand, particularly from China, East Asia and Europe, should lift volumes across Skydiving, Reef Unlimited and Wild Bush Luxury. This may support higher group revenue and earnings.
• Structural growth in demand for experiential and adventure travel in iconic destinations, combined with Experience Co’s differentiated assets such as Aquarius II, Remora Reef Pontoon and exclusive two island reef tours, is likely to sustain pricing power and expand average revenue per customer, which could boost margins.
• Disciplined cost efficiency and procurement programs, including targeted savings of over $2 million annually and ongoing corporate cost out, are expected to deepen operating leverage as volumes grow. This may improve EBITDA margins and net profit.
• A scalable organic growth pipeline, such as additional Treetops sites, new attractions at high performing locations and expansion of marine offerings beyond the current footprint, should allow the company to deploy relatively modest growth CapEx for potentially outsized revenue and earnings uplift.
• Underutilized financial assets, including significant carried forward tax losses, available franking credits, undrawn debt facilities and modest gearing, give Experience Co capacity to fund growth initiatives and capital management. This may enhance free cash flow per share and earnings per share over time.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Experience Co's revenue will grow by 8.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from -0.7% today to 8.9% in 3 years time.
• Analysts expect earnings to reach A$15.0 million (and earnings per share of A$0.02) by about December 2028, up from A$-975.0 thousand today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 15.9x on those 2028 earnings, up from -89.2x today. This future PE is lower than the current PE for the AU Hospitality industry at 32.4x.
• Analysts expect the number of shares outstanding to grow by 0.74% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.8%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Experience Co’s heavy reliance on peak school holiday periods and event driven demand in Australia and New Zealand exposes it to increasingly volatile and extreme weather patterns. This could lead to more frequent cancellations for marine tours and skydiving, reducing annual revenue and compressing EBITDA margins over time.
• Long term shifts in consumer spending under sustained cost of living pressures may limit domestic discretionary travel. If this coincides with a slower than expected recovery or a future downturn in international visitation, volumes across Skydiving, Reef Unlimited and Wild Bush Luxury could stagnate, constraining earnings growth and net profit.
• Structural changes in aviation capacity, airfares and international travel policy, particularly on routes into gateway cities like Cairns, Darwin and Queenstown, could keep access costs elevated or constrain seat supply. This may dampen visitation to key regions and weigh on segment revenues and free cash flow generation.
• As new and existing operators invest in high profile attractions and accommodation in Tropical North Queensland and other adventure hubs, competitive intensity in experiential tourism may rise faster than demand. This could erode Experience Co’s pricing power and limit future improvements in average revenue per customer and operating margins.
• Growth ambitions anchored in capital intensive marine vessels, aircraft and new Treetops sites increase execution and utilization risk. If new projects or bolt on acquisitions underperform due to cyclical or structural tourism headwinds, returns on invested capital could fall short, pressuring future earnings and weakening balance sheet resilience.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of A$0.24 for Experience Co based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be A$169.3 million, earnings will come to A$15.0 million, and it would be trading on a PE ratio of 15.9x, assuming you use a discount rate of 8.8%.
  
• Given the current share price of A$0.12, the analyst price target of A$0.24 is 52.1% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.