Saturday, February 5, 2011

Share Price Alert: Tourism Holdings Ltd

The profit warning for Tourism Holdings Ltd [THL.NZX] out yesterday is par for the course for this company. It has a long history of overpromising and under-delivering then making excuses for doing so.

They are blaming natural disasters in this part of the world for a slow-down in bookings and also snow in Britain preventing people from booking holidays - I think they have the internet there don't they?

If you have invested in THL at higher prices I am sorry to hear that but don't expect results to consistently improve while current management are heading the operation.

Basically they suck!

This is why.

As I pointed out in July last year this company is so badly managed it is worth much more broken up than as a functioning company. Back then its net tangible asset backing was $1.37 per share and it was trading at about 75c per share. It now has an asset backing of $1.31 at 59c per share after dropping 20% yesterday on the bad news.

These are company valuations of their assets so you could probably remove a good 30c per share just to be safe in this climate of low prices for assets.

The kicker with the profit warning is that the company will be in breach of its banking covenants at the early part of this year, something that Bruce Sheppard pointed out was being risked mid 2009.

It is anyone's guess what might happen next but if the bank doesn't see the company improving in 2011 they could well be tempted to pull the plug.

In that case of course shareholders are well down the line of creditors.

If this doesn't happen the company could well be attractive to a buyer of all or part of the company's assets.

At 59c per share it maybe well worth a punt.

Having said that there will provably be more share price weakness as the company moves into the slower part of its business year during the Winter months.

Look to buy on a lower share price for an outside punt that could pay off well.

Not for the long term.

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c Share Investor 2011

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