Technology Advancements Will Improve Future Operational Efficiency In RV Industry

Key Takeaways

• Strategic use of technology and capital management aims to enhance operational efficiency and boost future revenue and net margins.
  
• Expected recovery in North America and growth in New Zealand and Australia will drive revenue and profitability improvements.
  
• Economic challenges and market disruptions reduce vehicle sales and margins, with tariff uncertainties and high expenditures straining profitability growth.

Catalysts

Operates as a tourism company worldwide.

• Tourism Holdings is focusing on leveraging technology advancements to increase operational efficiency and create new revenue opportunities, likely leading to better revenue and net margins in the future.
  
• The merger benefits and cost reduction strategies are anticipated to result in medium-term profitability improvements and increased net margins.
  
• The company's strategic management of capital has led to reduced build costs, which should positively affect future earnings and net margins.
  
• The potential recovery in North American vehicle sales and rental growth in New Zealand and Australia are expected to drive revenue growth.
  
• Tourism Holdings has been investing in infrastructure and strategic market positioning, such as their Auckland site move, which is projected to enhance future operational efficiency, leading to improved revenue and earnings.

Tourism Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Tourism Holdings's revenue will grow by 7.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.7% today to 7.9% in 3 years time.
• Analysts expect earnings to reach NZ$91.0 million (and earnings per share of NZ$0.43) by about February 2028, up from NZ$24.9 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as NZ$62.2 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.5x on those 2028 earnings, down from 16.1x today. This future PE is lower than the current PE for the NZ Transportation industry at 15.4x.
• Analysts expect the number of shares outstanding to grow by 0.41% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.31%, as per the Simply Wall St company report.

Tourism Holdings Future Earnings Per Share Growth

Risks

• The RV market has taken serious knocks, resulting in poor vehicle sales which have driven margins down, impacting earnings and net margins.
  
• The current economic conditions are challenging, creating uncertainty about the future volume of vehicle sales, which affects revenue forecasts.
  
• Yield reductions across all markets suggest a potential decline in profitability if yield expectations are not met, impacting net margins.
  
• The North American tariff uncertainty could increase RV production costs, potentially raising vehicle prices and affecting vehicle sales revenue.
  
• High non-fleet capital expenditures, due in part to necessary site relocations, can strain financial resources, impacting net margin and profitability growth in the short term.

Valuation

• The analysts have a consensus price target of NZ$3.108 for Tourism Holdings based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of NZ$4.21, and the most bearish reporting a price target of just NZ$1.8.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be NZ$1.1 billion, earnings will come to NZ$91.0 million, and it would be trading on a PE ratio of 10.5x, assuming you use a discount rate of 11.3%.
  
• Given the current share price of NZ$1.82, the analyst price target of NZ$3.11 is 41.4% 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.