The highs and lows of thrill-seeking stock Experience Co
Given the rollercoaster ride on the stock market of the last few weeks, I thought I would focus on a thrill-seeking stock - literally.
Experience Co is an adventure tourism business.
Their primary revenue source is from sky diving, and they also offer hot air ballooning, white water rafting, helicopter rides and great barrier reef tours. Consistent with their adventure ethos, long-standing shareholders have also been on an adventure-filled ride.
The company was founded in 1999 by sky diving enthusiast Anthony Boucat. It listed in March 2015 at a listing price of $0.25.
By December 2015, it had ascended to $0.915 with numerous capital raises along the way to facilitate building a portfolio of adventure tourism businesses.
Then began the freefall.
A tragic sky diving accident in Queenstown, New Zealand, where an American tourist lost his life, sparked the commencement of a rapid decline as the share price plummeted to its current level of $0.22.
The New Zealand accident followed another accident in Mission Beach, Queensland, in October 2017 where three people died.
Throughout 2018 and 2019, three earnings downgrades have been issued.
In addition to the negative impact from the accidents, Experience Co have felt a major impact from other external factors. In particular, weather-related events have made earnings unpredictable from the far North Queensland hub.
Record rainfall in January this year, floods washing away the road to their white water rafting venue, and cyclones have resulted in them having to suspend operations a lot more than would normally be expected.
Further, inbound tourism to Cairns has been depressed, following reductions in-flight services and higher prices on domestic flights.
It would appear there was initially a lot of focus on growth by acquisition and not so much on operational efficiency.
And with earnings and the share price spiralling down it was time to parachute in a new management team.
First responder was Bob East. He joined the board in April 2018 and was appointed chairman in October.
He is a very experienced executive in the tourism sector, the current chairman of Tourism Australia and previously the CEO of Mantra Group.
East also attracted the managing director of Tourism Australia, John O'Sullivan, to come across as the new CEO of Experience Co.
In addition there have been a raft of other changes to the executive team as well as the board. Founder Anthony Boucat remains involved but will move to a non-executive director role in September.
O'Sullivan's first task will be to lead the strategic review aimed at simplifying the business.
During the current financial year, revenue and earnings guidance have been revised down twice. The final outcome will be revealed when results are published at the end of August.
The good news is that despite the recent difficulties, the business has remained profitable throughout.
With a strong portfolio of assets spread across Australia and New Zealand and a new and experienced management team in place, the foundations are in place for a business that capitalises on the increasing popularity of adventure tourism.
Profits are likely to be stable this year, despite the revisions to expectations (which were originally for growth).
If that proves to be the case the current price is probably close to fair value. As to the potential upside, a lot is riding on the new-look team.