Is Tourism Holdings Limited (NZSE:THL) Trading At A 33% Discount?

Tourism Holdings Limited (NZSE:THL) is a global tourism company operating in the recreational vehicle (RV) rental and manufacturing sectors. With a market capitalization of AUD 398.16 million and an enterprise value of AUD 934.56 million, THL is the world's largest commercial RV rental operator, with operations in New Zealand, Australia, the United States, Canada, the UK, and Europe. In this article, we will explore whether THL is trading at a 33% discount, as perceived by some investors, and analyze the factors contributing to this perception.



Valuation Metrics
THL's current share price is NZ$1.80, with a 52-week high of NZ$3.57 and a 52-week low of NZ$1.58. The company's trailing PE ratio is 11.2x, which is lower than the average PE ratio of 14.5x for companies in the Global Transportation Industry. This discrepancy suggests that THL may be undervalued compared to its peers.

Key Valuation Metrics
To further analyze THL's valuation, we can examine other key metrics:

1. Enterprise Value/Revenue: 1.1x
2. Enterprise Value/EBITDA: 5.6x
3. PEG Ratio: 0.5x
4. Price to Earnings Ratio vs Fair Ratio: 11.2x vs 18.4x
5. Analyst Price Target: NZ$3.18, with a 37.2% undervalued intrinsic discount

Factors Contributing to the Perceived Discount
Several factors contribute to the perception that THL is trading at a 33% discount:

1. Earnings Growth: THL's earnings are forecast to grow by 21% per annum, which is higher than the average earnings growth rate of 12.4% for companies in the Global Transportation Industry. This high growth rate suggests that the current share price may not fully reflect the company's future earnings potential.
2. Dividend Yield: THL has a dividend yield of 5.72%, which is higher than the average dividend yield of 3.5% for companies in the Global Transportation Industry. A higher dividend yield suggests that the stock may be undervalued, as investors are receiving a higher return on their investment.
3. Analyst Price Targets: The consensus analyst price target for THL is NZ$3.18, which is 75.56% higher than the current share price of NZ$1.80. This suggests that analysts expect the stock to appreciate significantly in the future, indicating that it may be currently undervalued.
4. Market Sentiment: The recent reduction in earnings guidance and the resignation of key executives may have negatively impacted investor sentiment towards THL, leading to a lower stock price and a lower PE Ratio.

Risks and Challenges
While THL may be undervalued, investors should be aware of the risks and challenges the company faces:

1. Interest payments are not well covered by earnings, as indicated by an interest coverage ratio of 2.56.
2. Profit margins have decreased from 7.5% in the previous year to 4.3% in the current year, which may signal a deterioration in the company's operating performance.
3. The dividend of 5% is not well covered by free cash flows, which could indicate that the company is relying on earnings to fund the dividend, potentially impacting its sustainability in the long term.
4. Shareholder dilution: THL has experienced a 14.14% increase in shares outstanding on a year-over-year basis, which could dilute the value of existing shares.
5. Insider selling: There have been instances of insider selling, with the Chief Transformation Officer selling AU$279k worth of stock and the Chief Executive Officer selling AU$519k worth of stock. While this does not necessarily indicate a negative outlook, it may raise concerns about the company's future prospects if key insiders are selling their shares.
6. Resignation of key executives: THL has experienced the resignation of key executives, including the Chief Customer and Revenue Officer, the Chief Financial Officer, and a Director. These changes in leadership could potentially disrupt the company's operations and impact its performance.
7. Market conditions: THL operates in the tourism industry, which is sensitive to economic conditions and consumer spending. A downturn in the economy or a decrease in consumer spending could negatively impact the company's revenue and profitability.

Conclusion
Based on the analysis of THL's valuation metrics, earnings growth, dividend yield, and analyst price targets, it appears that the company may be trading at a 33% discount. However, investors should be aware of the risks and challenges THL faces, such as interest coverage, profit margins, dividend coverage, shareholder dilution, insider selling, executive resignations, and market conditions. By carefully considering these factors, investors can make an informed decision about whether THL is an attractive investment opportunity at its current valuation.