Apollo Tourism guides to record profit: Conditions to normalise

Shares in Apollo Tourism (ASX: ATL) were up around 1% this morning following higher guidance. By noon, the smallcap wholesaler/retailer of RVs, motorhomes, campervans and caravans, was down by a corresponding amount at $0.835, only to be up over 2% two hours out from the close.

Apollo now expects to post a record underlying net profit after tax (NPAT) of more than $20m.

Due to strong yields and higher than expected retail margins, management notes rental revenue targets were exceeded in every region in first quarter FY23, with utilisation broadly in line with budget.

Today’s guidance, which follows solid first quarter performance, excludes the $3.1m impact of merger-related transaction costs in FY23.

"Higher than expected retail margins also contributed to Australia exceeding expectations for the quarter," the group noted.

Conditions to normalise

The improved outlook also reflects strong forward rental bookings for the upcoming summer season in A&NZ.

However, management reminded investors that current strong demand and margins experienced within its retail divisions with normalise to more traditional levels.

In short, the company expects interest rates rises, the rising cost of living and easing of supply chain pressures to start taking effect.

Protracted merger continues

Meantime, Apollo is currently digesting a protracted all-scrip merger with global tourism operator, and Kiwi-listed company Tourism Holdings (NZX: THL) that it embarked on late last year.

Management expects the combined entities to create a diversified travel company serving Australia, NZ, North America, the UK, and Europe.

Cost synergies were expected to bring an earnings boost of between approximately $16.2m and $18.1m annually.

It’s understood around two thirds of these synergies are fixed costs relating to the duplication of corporate costs or properties.

Ord Minnett remains Buy rated, lowers target

Back on January Ord Minnett upgraded Apollo to Buy from Hold, with the target price of $0.77 having concluded that the merger with THL offers Apollo’s shareholders an opportunity to hold a stake in a much larger business.

Following the FY22 result, which saw the company post underlying earnings (EBIT) of $4.4m, versus -$17.7m in FY21, the broker lifted revenue forecasts to reflect improving demand for recreation vehicle (RV) rentals, ex fleet sales and retail dealerships in both Australia and North America.

While there's a risk the merger won't proceed due to ACCC scrutiny, the broker expects merger timing to be in late 2022.

Meantime, due to D&A impacts plus higher interest rate assumptions, Ord Minnett lowers EPS estimates for FY24 and FY25. 

As a result, the broker’s target falls to $0.66 and the Buy rating is unchanged.

Apollo Tourism & Leisure share price movements today.