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Should you board the Sealink IPO?

The initial public offerings (IPO) market is hotting up and one of the smallest listings definitely looks interesting.

Sealink Travel Group is expected to list on the ASX on October 24 under ASX code SLK, after applications for shares closed yesterday 2 October. Sealink is only offering 15 million shares at $1.10 each, and will have a market cap of $77 million upon listing. 55 million shares are already on issue, with directors holding a big chunk, although they are selling down some of their shareholding.

Sealink owns and operates 18 ferries, ships and other maritime craft, 26 coaches, buses as well as maritime facilities, travel agencies and accommodation on Kangaroo Island in South Australia. Sealink owns Capitan Cook Cruises, which operates cruises and ferries on Sydney Harbour and Murray River cruises, as well as ferry services in Queensland and the Northern Territory.

The majority of revenue comes from Sealink’s operations to and from Kangaroo Island at 54%, with Captain Cook Cruises contributing 34% and Queensland ~12%. Sealink is the key provider of transport services to Kangaroo Island, including a regular freight service. So far competitors have failed to break Sealink’s hold on that market, with six operations falling by the wayside since 1989.

While Regional Express Holdings (ASX: REX) flies into Kangaroo Island, return adult fares are around 3 times more expensive than taking the ferry. With a one way trip taking just 45 mins and passengers having the flexibility of taking their own cars onto Kangaroo Island via Sealink ferries, REX doesn’t pose a major threat to Sealink.

Revenues have grown at an annual compound rate of 13% since 2004 and are expected to hit $98.5 million in the 2014 financial year. Net profit after tax is expected to come in at around $7.7 million, up from $7.0 million in 2012.

Foolish takeaway

Trading on a P/E ratio of 10 times and less than 1 times price to sales and paying a fully franked dividend yield of around 6.5%, Sealink may well be worth boarding. If you want more details, you can download the prospectus here.

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Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned.

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