I really like the idea of investing in shares that benefit from a long-term tailwind. My thinking is that if the business can adequately follow its strategy it should lead to growing profits, the business would have to screw up significantly to not do well.
The ageing demographics is the most obvious tailwind for investors, but tourism could be another tailwind to profit from as well.
With that in mind, here are three tourism-focused businesses:
Crown Resorts Ltd (ASX: CWN)
Crown Resorts currently operates two large entertainment & casino complexes in Melbourne and Perth. Indeed, the Melbourne complex is a huge combination of hotels, shops, a multi-level casino, restaurants, cafes, conference rooms and other entertainment facilities like a cinema.
The business has had trouble with Chinese authorities in recent times, which appeared to put off VIP gamers. However, VIP numbers appear to be returning and now the business is revealing growth again with normalised earnings before interest, tax, depreciation and amortisation (EBITDA) up by 3.4% in the half-year result.
When Crown Sydney is completed in a few years Crown could receive a sizeable increase in earnings, which could make today’s price seem cheap.
Crown is currently trading at 21x FY19’s estimated earnings.
SKYCITY Entertainment Group Limited (ASX: SKC)
This is a similar business to Crown in some ways. It runs casinos and hotels in various cities across Australia and New Zealand.
It has exclusive casino licences in Darwin, Adelaide, Auckland, Hamilton and Queenstown. Those exclusive casino licences are for many years into the future, such as the Auckland licence which is to at least 2048. This is a very good barrier of entry to competitors.
The Auckland location is particularly important because it generates 55% of revenue and 72% of normalised earnings before interest, tax, depreciation and amortisation (EBITDA).
Skycity has several avenues of growth in the future such as new forms of entertainment and expanding its locations. It wants to expand the Adelaide enterprise in-particular, as that is the biggest city it operates in, outside of New Zealand.
It could drive medium-term earnings with a number of its projects. It’s currently trading at 15x FY19’s estimated earnings.
Auckland International Airport Ltd (ASX: AIA)
Here is another Kiwi company that I think is worth watching. Auckland Airport is undoubtedly the main international air entry point into New Zealand, even if many passengers then fly on to another destination.
Every month the airport company reveals its growth of monthly passengers. In the March monthly update the number of international passengers increased by 8.2% compared to March 2017. If the number of international passengers continues to increase then Auckland Airport should achieve higher earnings.
It’s currently trading at 29x FY19’s estimated earnings.
I believe all three shares can look forward to higher earnings over time. However, at the current prices Skycity appears to offer the most compelling value for the short-term. However, Crown could be the winner in the long-term.
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Crown Resorts Limited. The Motley Fool Australia has recommended Sky City Entertainment Group Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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