For the second time this month the Aussie dollar has dropped below $0.70 against the US dollar.  On 4 September the dollar fell to $0.69, rallied a bit, and then fell below $0.70 again on 24 September, intraday, before closing back to $0.70. One year ago the AUD was close to $0.89, a decline of a little more than 21%.  Here is how the fall looks on a chart.

Economists at Deutsche Bank and elsewhere see a possible fall to $0.50 in 2016, with a rise in the dollar on hold till 2017 or even 2018.  The reasons?  The same worries facing the economy as a whole – falling commodity prices, declining mining investment, reduced government spending,  and a difficult transition from a resource economy to new sources of growth.

For the past year or more investors have been treated to an array of articles touting ASX stocks that actually benefit from the falling dollar, among them Tourism and Leisure stocks.  A recent national survey conducted by the Tourism & Transport Forum Australia (TTF) found that close to 40% of Aussie travelers changed their plans due to the falling dollar.  The TTF CEO says although the impact of the dollar on travel plans is in the early stages, that impact will “strengthen over time.”

For an Australian on a vacation in the US five dollars of goods will cost them about seven dollars and forty cents Australian.  The AUD is weak against the Euro and the British Pound as well.  However, the reverse scenario is in play here as well, since an American travelling in Australia can buy five dollars of goods for only three dollars and fifty cents US.  In short, the exchange rate is not only expected to keep more Australians at home for tourism and leisure activities, but it also makes Australia a much more attractive destination for foreign tourists.

We searched ASX Tourism and Leisure Stocks for dividend paying companies with double digit earnings growth forecasts.  Some economists are predicting the RBA will cut rates down to $1.50 during the first half of 2016.  Yield is an additional attraction for most of the Tourism and Leisure Stocks in the table below.  All pay dividends, but not all are fully franked.  Here is the table.

Company

(Code)

Market Cap

Share Price

52 Week % Change

P/E

(TTM)

Forward P/E

Dividend Yield

(Franking %)

2 Year

 Dividend Growth Forecast

2 Year Earnings Growth Forecast

Crown Resorts

(CWN) $7.5b

$9.87

-30%

18.66

12.59

3.8%

(50%)

+7.6%

+12.1%

Echo Entertainment

(EGP)

$4.0b

$4.82

+46%

23.51

16.07

2.5%

(0)

+10.8%

+20.5%

Sky City Entertainment

 (SKC) $2.0b

$3.45

+3%

24.64

12.78

5.5%

(0)

+8.9%

+14.9%

Ardent Entertainment

(AAD) $1.2b

$2.68

-15%

36.71

15.76

4.9%

(0)

+11.7%

+43.3%

Village Roadshow

(VRL) $1.1b

$6.93

-1%

25.48

16.50

4.1%

(100%)

+3.5%

+10.7%

SeaLink Travel Group

(SLK) $279m

$3.01

+68%

25.08

18.81

2.8%

(100%)

+16.3%

+14.3%

 

Crown Resorts Limited (CWN) owns, operates, and has interests in a variety of integrated resorts.  These are high-end facilities featuring hotels, restaurants, shopping and entertainment venues, and casino gambling.   Crown Casino in Melbourne and Crown Perth are two of the largest such resort complexes here in Australia.  In addition, the company beat out rivals for the rights to build a similar complex in Sydney. Crown also operates a high end casino in London’s West End district.  A subsidiary of Crown in the US has acquired a 35 acre site on Las Vegas Boulevard with unfinalized plans to develop the site, the former home of the New Frontier Casino.  Crown will hold a majority interest in the site.

In 2004 Crown entered into a joint venture with Hong Kong based Melco International Development Limited to form Melco Crown Entertainment, which now trades on the US NASDAQ exchange.  The joint venture had its sights on casino operations in Macau and its first resort, the Altira Macau, opened in 2007.  By 2011 the joint venture had acquired a 60% interest in Macau Studio City, a massive integrated resort under construction.  

Melco Crown has a resort operation in the Philippines but it is the prospect of a steady influx of Chinese gamblers into Macau that caught the fancy of investors.  Macau has become problematic for Crown as Chinese regulators are investigating corruption in Macau casinos.  Gaming revenue there fell 26.8% in FY 2015, contributing to Crown’s less than stellar profit picture.  On 24 September CWN dropped below $10 for the first time since 2012.  Here is a five year chart for CWN.

Despite its troubles in Macau, CWN still has an Outperform analyst consensus rating with 4 analysts at Buy, 2 at Outperform, 5 at Hold, and 1 at Underperform.  Investors willing to weather the storm until Crown’s new projects begin to generate revenue could be well rewarded.

Echo Entertainment Group Limited (EGP) was spun off from Tabcorp Holdings (TAH) back in 2011.  The company owns and operates three integrated hotel/casino complexes in Sydney, Brisbane, and the Gold Coast; and manages the Gold Coast Convention and Exhibition Centre for the Queensland Government.  Early investors in Echo saw a rough ride but beginning one year ago in 2014 the stock price has done well.  Here is the chart for EGP.

The company’s Full Year 2015 results far surpassed those of rival Crown, with a 20.6% rise in revenue and a 52.2% increase in net profit after tax (NPAT).  In addition while Echo lost out to Crown for the Bangaroo resort complex in Sydney, Echo won the battle for development rights to the Queen’s Wharf complex in Brisbane.  Like Crown, Echo has an analyst consensus rating of Outperform, with 4 analysts at Buy, 3 at Outperform, 5 at Hold, and 1 at Underperform.

SkyCity Entertainment Group (SKC) is a New Zealand based operator of integrated casino complexes, with two sites in New Zealand and two here in Australia in Darwin and Adelaide.  The company is planning major expansions in its Auckland and Hamilton facilities.  This strategy stands in marked contrast to the approach at Crown which involves brand new properties in new locations.  However, both are turning casino destinations into broader based retail and entertainment complexes.

SkyCity reported solid Full Year 2015 results on 12 August, with an 11.8% revenue increase and a 30.7% profit increase.  Investors were either not impressed or more concerned with the drops in global share markets that began around 19 August.  The SKC stock price has been dropping ever since.  Here is the chart.

Ardent Leisure Group (AAD) operates entertainment and leisure businesses here in Australia and in the US.  The US segment operates 20 Main Event centres, which are family oriented entertainment complexes, with video and arcade games, laser tag, rock climbing, bowling, and fast food service plus family oriented restaurants.  Ardent is planning to add 15 more centres in the US over the next two years.  Obviously, the steep drop in the dollar is contributing to Ardent’s revenues.  Here in Australia it is the company’s three theme parks and marinas that could benefit from increased domestic and international tourism.  

Ardent also operates bowling centres, marinas, and health clubs here in Australia.  The Goodlife Health Club chain has been a major contributor to Ardent’s earnings.  Earlier in the year the company issued a profit warning, largely as a result of declining memberships in the chain, especially in Western Australia.  The stock price was hit again when the company’s CEO resigned and analysts were less than impressed with the replacement.  The company had acquired another health club chain, Fitness First, but as yet has not lived up to its promise.  

The company’s Full Year 2015 Results were released in mid-August and although core earnings dropped slightly (3.3%) revenues rose 17%.  The US Main Event Centres saw a 68.7% revenue increase and the company’s rollout of measures to correct the slippage in the health club segment appear to be gaining traction, with revenues for the Goodlife chain up 8.7%.  The Theme Parks were hurt by too much rain but showed a small drop in revenue from $100.1 million to $99.6 million.  Investors liked the results as the share price jumped from $2.18 to $2.61 within two days.  Here is the chart.

Village Roadshow (VRL) is in the media sector.  It is a major movie producer and film and DVD distributor but we included it because of its seven different themed parks.  Village Roadshow is our largest theme park operator and operates one park in Las Vegas with plans to expand its theme park presence into Asia.   Like Ardent, VRL theme parks suffered from unseasonal rainfalls. On 25 August the company released Full Year 2015 Financial Results and NPAT did drop 4%, although revenues rose 4%.  

Management was upbeat about 2016 performance and investors sent the stock price upward.  The stock was trading at $5.57 before the release.  Here is the chart.

The smallest stock in the table is tourism operator SeaLink Travel Group (SLK).  It has been on the rise since its first day trading on the ASX – 16 October 2013 – when it closed at $1.50.  Here is a price movement chart for SLK since it began trading on the ASX.

SeaLink is a seaborne transport and tourism company.  The transport operations move regular customers and freight.  The company also ferries tourists to attractions and offers packaged tours as well.   SeaLink operates in the Northern Territory, New South Wales, South Australia, and Queensland.  

On 18 September the company expanded its seagoing fleet from 27 vessels to 60 through the acquisition of Transit Systems Marine and the stock price shot up 12%.

This is a company in business for less than two years that is already paying a fully franked $0.04 per share dividend, which rose 8% from last year and has a 16.3% growth forecast over the next two years.  Full Year 2015 Results boasted a 29.6% increase in profit and a 7.2% increase in revenue.  While one can attribute much of the profit increase to the collapse of the price of oil, the outlook for tourism in Australia is bright.  

Government Agency Tourism Australia publishes a quarterly update on the current state of international tourism in Australia.  The August report included data from both the Australian Bureau of Statistics and the latest International Visitor Survey up to March 2015.  The number of international visitors arriving in Australia rose 8% between March of 2014 and March of 2015.  The amount international visitors spent increased 10% over the same period.  

Finally, Deloitte Access Economics issued its mid-year update on the outlook for the Australian Tourism and Hotel Industry.  Here is a statement from the opening paragraph of the Executive Summary of their report:

•    While the pace of growth in the global economy has been slower than anticipated, it has nevertheless supported international visitor arrivals growing above trend, as both the depreciation of the Australian dollar and a sharp fall in oil prices-which both increases income growth and reduces the cost of travel-have buoyed demand for the Australian experience.

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