KEY POINTS:
A market used to disappointment has undervalued takeover target Tourism Holdings, says independent adviser Ferrier Hodgson in its report into the takeover bid for the tourism operator.
Ferrier Hodgson's report, released yesterday, contains a more bullish valuation, based on Tourism Holdings' own projections.
"We note that [Tourism Holdings']
projections are well in excess of market consensus forecasts and [Tourism Holdings'] historical performance," the report said.
Results during the past few years had been disappointing, with static trading profit, but the year ending June 30 would be strong, with growth expected next year, the report said.
ASX-listed MFS Living and Leisure is offering $2.80 a share for all of Tourism Holdings, valuing the firm at $277 million.
Tourism Holdings shares closed steady at $2.76 yesterday, compared to $2.27 before the bid.
Should the offer fail the share price would be expected to fall, but Tourism Holdings' earnings figures used for the valuation were higher than those used by the market, Ferrier Hodgson said.
"So to the extent that these are accepted as achievable, there may not be a reversion to pre-offer pricing levels and it may be that the price settles somewhere in between."
The adviser's valuation range of between $2.67 and $3.07 was based on Tourism Holding's projections, which assumed growth in line with tourism forecasts and no shock events.
But events such as Sars or the September 11 terrorist attacks could significantly affect earnings - a shock event in Australasia could affect the valuation by more than 55c a share.
Tourism Holdings directors recommended the offer but director David Cushing, whose family owns a 10 per cent stake, abstained because of a possible conflict of interest.
"Cushing has advised Tourism Holdings that he will recommend to the entities which hold those shares that they seriously consider accepting the offer based on the views expressed in the independent adviser's report," Tourism Holdings said in the report.
First NZ Capital analyst Jason Familton said the $2.80 bid was not a bad start but was below the mid-point of the valuation range.
"Given the track record of the company and the historical volatility in earnings and external shocks impacting it, I guess that's probably why you've seen people be more conservative on earnings forecasts than potentially what management are."
Familton said the takeover bid was unlikely to change the market's approach and should the offer fail the share price would fall back to a pre bid or slightly higher level.
Andrew Bascand, portfolio manager at AllianceBernstein which manages some stock for 12.4 per cent stakeholder AXA, said opinions had to be revised after Tourism Holdings made a significant earnings upgrade just days before news of the takeover.
The company - which owns coaches, rents vehicles and operates attractions including Kelly Tarlton's and Milford Sound Red Boat Cruise - increased its after-tax trading profit forecast to between $17.5 million and $18.5 million, up from a $15 million to $18 million range.
