DESPITE a lot of discussion in the press to the contrary, the resilience of the Australian economy post the mining construction boom is quite extraordinary. A significant component of this has been delivered by the resurgence of service based industries such tourism and the export of education.
Positioning portfolios to benefit from tourism is not straight forward. One stock we have favoured is Mantra Group. The company does not operate solely in Australia with operations in Indonesia and New Zealand as well. The business has three divisions, central business district, resorts and central revenue and distribution. At their annual general meeting last year the company indicated the resorts business is positioned to benefit from the increase tourism numbers but would it would appear the CBD business is currently a drag on performance.
Sydney Airports (SYD) would appear to be a key beneficiary of these trends. The company was recently issued a Notice of Intention (NOI) by the Federal Government regarding the development of Western Sydney Airport (WSA). Under the NOI, SYD will be forced to bear the full cost of the development which is expected to be in the range of $5-6 billion. Previously the government was expected to support the development by paying for the site preparatory works. While there is no earnings downgrade, and in fact SYD has reported solid recent traffic figures, this may diminish enthusiasm for the stock in the medium term.
Star Entertainment (previously Echo Entertainment) demerged from TABCORP in June 2011. It owns and operates three casinos across Australia's eastern sea board. The Star, located in Sydney is its flagship property while its two other casinos are located in Queensland. Star Entertainment was recently awarded the Queens Wharf development in Brisbane with its consortium partners. The $3b development is expected to be completed in 2022 and adds to the offering of the Treasury casino.
Asian tourism remains a solid multiyear growth theme with casinos benefiting from higher mass market and VIP patronage. We see continued growth in tourism in FY17 building on very strong visitor growth of over the past 12 months. Importantly, high growth is expected to continue in the long term with Chinese visitor numbers expected to double by 2025. We believe Star Entertainment is well placed to outperform local competitors given its exposure to the higher growth markets of Sydney and Queensland. We also note it should benefit from the Commonwealth Games to be held on the Gold Coast in FY18.
- Christopher Hindmarsh is an adviser at JBWere Limited which is owned by NAB. Email christopher.hindmarsh@jbwere.com or contact (02) 9325 2639. This article contains general advice only. In preparing it JBWere didn't take into account the investment objectives, financial situation and needs of any particular person. Readers should assess if the information is appropriate for them.
