Cox and King's stock has been de-rated and saw a severe fall after their acquisition of Holiday Break. But as they say, buy when others are most pessimistic. Let us look why.
The stock should be looked at fundamentally for FY13 and FY14 perspective.
HolidayBreak(HBR) revenue is highly cyclical with 6 months of high EBITDA ( Apr-Sep) and other 6 months of negative EBITDA ( lean period Oct - Mar). Now since only the last 6 months are being added for FY12, consolidated profits will fall drastically for FY12 ending on Mar 12 for Cox and King.
For the same reasons, EBITDA margins are expected to crash to 21% for FY12, but will rise again to 43-44% for full year FY13, as HBR also operates at 44% EBITDA range.
The prime concern is the high D/E of 3.3 on FY12E, which will fall to around 1.9 by FY14. (There is a moratorium on principal payments).
Strong operational cash flow will see Cash EPS rise to around 30 in FY13E and 36 in FY14E.
While Cox and Kings have made 7 acquisitions in the past 5 years to grow
inorganically, Holidaybreak Plc acquisition costing ~£312 million (~2,200 crore) will still be a very big challenge.
HBR has almost stagnant revenue and profitability. So realization of synnergies, especially during the lean half of the year will drive things around.
While domestic business of Cox and Kings is on a sound footing, however from FY13 onwards HBR will contribute around 62% of the consolidated revenues. Hence, any slowdown in Europe will moderate revenue growth and profitability for the company.
Let us look into the HBK acquisition in more details :
The deals provides opportunities to
a) Scope of cross selling
b) leverage combined volume across suppliers & partners > Margin lever
c) Better utilization of HB's lean period
Holiday Break mainly operates in four verticals with revenues shares as -
Adventure (22%),
Hotelbreaks(27%),
Education(27%) &
Camping(24%)
Adventure: Provides adventure trip solutions such as wildlife, trekking and scuba diving through its three brands namely Explore, Djoser, and Regal.
Synergies with C&K:
1. Cross-selling HBR products to C&K markets in India, RoW and Oceania
2. Ready for immediate launch of HBR's market ready bouquet of adventure products
3. Combined business volume of C&K and HBR to give them better bargaining power with suppliers
Hotelbreak: Provides domestic short break trips in the UK and the Netherlands through its brands Superbreak and Bookit respectively. Attracts nearly 0.9 million bookings annually.
Synergies with C&K:
1. Leveraging existing C&K operations to book European Hotels through Hotel Breaks
2. C&K outbound currently generates European hotel bookings worth ~US$51 million. combined with Hotel Breaks platform for hotels in India, Middle East and Far East, the combined volume is more than US$293 million
Education: Offers educational tours for UK schools and colleges to international destinations. PGL and Meininger has combined
capacity of ~14800 beds
Synergies with C&K:
1. Utilise existing capacities at PGL/Meininger properties during off peak season from existing C&K customer markets
2. Introducing PGL/NST brands in existing C&K markets for international tours into Europe, Use education centres for accommodation
Camping: Operates under a number of brands offering self catering mobile homes and pre sited tents across various European composites
Synergies with C&K:
1.Utilize existing capacities of Holidaybreak’s camping properties to existing C&K markets like India and Australia
So apparently this does not seems to be a case of diworsification. However management pedigree needs to be ascertained.
How quickly they rationalize the synergies and complete the integration is critical to their success.
The stock should be looked at fundamentally for FY13 and FY14 perspective.
HolidayBreak(HBR) revenue is highly cyclical with 6 months of high EBITDA ( Apr-Sep) and other 6 months of negative EBITDA ( lean period Oct - Mar). Now since only the last 6 months are being added for FY12, consolidated profits will fall drastically for FY12 ending on Mar 12 for Cox and King.
For the same reasons, EBITDA margins are expected to crash to 21% for FY12, but will rise again to 43-44% for full year FY13, as HBR also operates at 44% EBITDA range.
The prime concern is the high D/E of 3.3 on FY12E, which will fall to around 1.9 by FY14. (There is a moratorium on principal payments).
Strong operational cash flow will see Cash EPS rise to around 30 in FY13E and 36 in FY14E.
While Cox and Kings have made 7 acquisitions in the past 5 years to grow
inorganically, Holidaybreak Plc acquisition costing ~£312 million (~2,200 crore) will still be a very big challenge.
HBR has almost stagnant revenue and profitability. So realization of synnergies, especially during the lean half of the year will drive things around.
While domestic business of Cox and Kings is on a sound footing, however from FY13 onwards HBR will contribute around 62% of the consolidated revenues. Hence, any slowdown in Europe will moderate revenue growth and profitability for the company.
Let us look into the HBK acquisition in more details :
The deals provides opportunities to
a) Scope of cross selling
b) leverage combined volume across suppliers & partners > Margin lever
c) Better utilization of HB's lean period
Holiday Break mainly operates in four verticals with revenues shares as -
Adventure (22%),
Hotelbreaks(27%),
Education(27%) &
Camping(24%)
Adventure: Provides adventure trip solutions such as wildlife, trekking and scuba diving through its three brands namely Explore, Djoser, and Regal.
Synergies with C&K:
1. Cross-selling HBR products to C&K markets in India, RoW and Oceania
2. Ready for immediate launch of HBR's market ready bouquet of adventure products
3. Combined business volume of C&K and HBR to give them better bargaining power with suppliers
Hotelbreak: Provides domestic short break trips in the UK and the Netherlands through its brands Superbreak and Bookit respectively. Attracts nearly 0.9 million bookings annually.
Synergies with C&K:
1. Leveraging existing C&K operations to book European Hotels through Hotel Breaks
2. C&K outbound currently generates European hotel bookings worth ~US$51 million. combined with Hotel Breaks platform for hotels in India, Middle East and Far East, the combined volume is more than US$293 million
Education: Offers educational tours for UK schools and colleges to international destinations. PGL and Meininger has combined
capacity of ~14800 beds
Synergies with C&K:
1. Utilise existing capacities at PGL/Meininger properties during off peak season from existing C&K customer markets
2. Introducing PGL/NST brands in existing C&K markets for international tours into Europe, Use education centres for accommodation
Camping: Operates under a number of brands offering self catering mobile homes and pre sited tents across various European composites
Synergies with C&K:
1.Utilize existing capacities of Holidaybreak’s camping properties to existing C&K markets like India and Australia
So apparently this does not seems to be a case of diworsification. However management pedigree needs to be ascertained.
How quickly they rationalize the synergies and complete the integration is critical to their success.
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