Presumably maintenance capital requirements are always going to be high for a campervan business.
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Now that THL are in defensive mode and not offence an important question to ask is what is their plan regarding this very important market
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Tradionally their bread and butter has come from europe poms in particular who enjoyed long stays and liked campervan travel infact most european nationals enjoy campervan travel , but what about our mate from asia , ive got the stereo type fit that they enjoy travel by bus and stay in hotels , motels?
If demographic trends are changing how will THL tap this market , if they continue to rely on westerners for their bread and butter wheres my return on funds employed gonna come from?
I might have missed it but I didnt recall seeing any mention about this huge market all I see is whinging about those bloody poms.
Excuse my writing if its a bit all over the pllace im a bit tired from late nights.
People want to know where the value , the strategy is to capture the discount to trend in the company’s performance what I mean by discount to trend is that it is underperforming compared to previous years the value to be obtained is the company returning to trend performance in theory leading to rerating of stock to trend.
This is not a long term investment it relies on the company implementing the correct medicine to correct the imbalance in performance.
I’m not going to go into the nuts and bolts of their financials I’m just going to present my strategy which I will hope show that sometimes when things don’t look that good there is sometimes money to be made by an investor.
Obviously the companies under pressure they have gone from offense to defence in their strategy and while some metrics are looking up their margins and sales are under pressure.
As I mentioned the strategy is looking for the company to return to trend performance in 2011 – 12 thanks to the RWC and the better margins achieved which should translate to the bottom line improvement. 2012 – 2013 I’m picking will see opportunities for rationalisation within the industry as I’m sure there’s a lot operators hanging on for the RWC , after that their businesses may not be viable so this leaves acquisitions available for companies in a strong position, also margins should improve following this consolidation in the industry.
By this time THL leverage position I would say will be below trend so they will be able to finance acquisitions.
The recent outlook update is not that surprising as I saw this year being still not that flash due to those macro factors I mention and the possible delay of travel by poms until RWC which seems to be evident.
The strategy of course relies on the company doing their part and macro issues falling into place so a lot of moving parts which could derail my plan.
Ill post later my thinking on certain parts of the company which long term investors should be concerned.:)
Hi Bull
I figured this was the plan. If you can buy the equity returning 5-6% below half it's book value, and they can fire ROE back up to double that return without consuming new cash to do it and they continue to pay out 80% of profits, then you could do very well in the short term.
But... Its a big if! Its a horrible turn around and a business that by definition does not have any competitive advantage (historical returns at, and then trending down way below, approx cost of capital) and if you follow the margin of safety concept I simply can't see how half of book is going to provide that.
Of course it sounds like you understand the businesses and its metrics well and possibly have insights that can provide the confidence needed, I will watch with interest, and will enjoy any more analysis you can post!
Thanks again Bull
Regards,
Sauce
In my opinion "a lot of operators hanging on for RWC" overstates the case. We have just come through the GFC and no significant sized rental operators have failed to my knowledge. Yeilds are certainly under pressure, and you can make a case that the industry is overdue for consolidation. But even if your point is correct and post RWC there are competitors whose business are not viable, why would these be a good acquisition for THL? At that point they would be buying run down assets and brands of negligible value with dwindling market share. I don't think THL could wave a magic wand and turn these into profitable companies. Surely if acquisitions were considered they would need to target the stronger competitors in the market that are profitable and experiencing growth. They won't be picked up at firesale prices, so that might involve some capital raising.
Incidentally, my guess is that the poor numbers out of UK are more likely a result of their belt tightening and general economic conditions rather than RWC, but if it is RWC related we can expect the effect the summer following RWC to be even more marked.
You are correct JR it has nothing to do with RWC just like the other side of the RWC should be business as usual.Quote:
Incidentally, my guess is that the poor numbers out of UK are more likely a result of their belt tightening and general economic conditions rather than RWC, but if it is RWC related we can expect the effect the summer following RWC to be even more marked.
As for consolidation I wasnt meaning to infer THL would be interested in run down operations im sure they would only look to companies which provided the economies of scale, efficiencies etc and the sales increase it would provide.
A basic assumption is that generally THL have to grow sales to acheive the return on funds employed to acceptable levels , the fact they havent acheived this over the last 2 years is due to the GFC so how they going to acheive this going forward?
Well I dont believe it is going to be from traditional customer base as this is probably in long term decline now due to shift in demographic wealth patterns so unless they change their business model to incorporate this the only way I see they can grow sales is thru acquisition which seems to be the path they are intending to follow.
The problem for long term investors is that at some point growth by aquisition no longer works and you will not get your return on funds.
Personally I liked their growth model they started in 2007 but have abandoned now as this would have provided the long term returns going forward because they would have been in the position to catch the demographic trend change as well as catching the synergies and margins from controlling the supply chain in effect.
So im in for the short term and wish long term holders good luck but unfortunately I find it hard to see how their current model will deliver long term wealth to shareholders.
So I suggest if you are long term holder you need to ask some serious questions at their AGM about their long term strategy and also how they are going to grow their sales by aquisition to acheive the return on funds in the short term:p
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Growing sales isn't going to help their ROI unless they change their pricing strategy. The most recently lauched brand, Explore More, is trying to grow sales through discounts, discounts and more discounts. Take a look at the website:
"We won't be beaten on price"
"lowest price guaranteed"
and they describe themselves as "Aotearoa's dirt cheap campervan and car rental experts."
Hi JR,
It is a sign of the competitive environment they currently operate in and as any one knows who operates in any kind of vechicle rental type business " a sale is a sale" even if the margin is crap.
By the way any additional sales they can acheive while maintaining costs will feed straight to the bottom line , a potential question to ask them is do they have idle capacity? if they do maybe they should start a grab a campervan daily deal.
Im going to the AGM so anyone want some questions asked let me know.