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Tourism and leisure stocks set for take-off?

Photo of Nick Radge By Nick Radge

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What the charts say about Sydney Airport, Ardent, Flight Centre, and Crown Resorts.

China put Australia on the map for its demand in resources. Is it about to do the same for the domestic tourism and leisure industries? Australia is experiencing a surge in international tourism, with the number of visitors up 8 per cent for year ended December 2014.
This accounts for about 2.7 per cent of Australia’s economy and is being helped along by the declining Australian dollar. The arrival-to-departure ratio has been on the rise, influenced by a solid increase in Chinese visitors.

A number of service providers, both domestic and international, have been expanding to cater for the increasing demand. The larger carriers in China have expanded their services to Australia, and UnionPay, the largest Chinese domestic card company, is now being widely accepted by retail outlets here.

Other players, such as Crown and Echo Entertainment, are expanding their presence. Let’s look at four major names and see how they stack up on the charts.

(Editor’s note: Do not read the following ideas as stock recommendations. Do further research of your own or talk to a financial adviser before acting on themes in this article).

1. Sydney Airports


Sydney Airports has been on a spectacular flight since the 2009 GFC lows. First-half results for 2015 were slightly above analyst forecasts, with passenger growth expected to continue, albeit slightly below long-term trend. The ability to invest in the second airport and the new jet base creates a strong cash flow outlook for the company. An announcement on the second airport in Sydney’s west is due later this year.

The weekly chart above highlights a strong and smooth trend off the 2009 lows. The steady pace of the trend with minimal volatility is a positive and at this juncture there is no evidence of a reversal of form. The only concern for investors in the near term is the recent acceleration of price. Generally after a parabolic rise (a sharp rally), even a minor one shown here, price will tend to track sideways for a period in order to catch its breath.

This is normal and is deemed healthy. Expect several months of range trading but a period of sideways price action will build a strong foundation for renewed ongoing strength.

 2. Ardent Leisure Group

Ardent Leisure operates premium assets such as Dreamworld, White Water World and Sky Point theme parks in Australia, as well as bowling alleys, health clubs and indoor family entertainment centres in the US.

The Ardent business operates on two platforms: the slower-growth Australian market and what has been the faster-growth US business. The US business is predominately in Texas, where the economy and consumer sentiment is highly dependent on the oil price. There are concerns that the growth brought to the broader business from its US operations may stagnate due to the falling oil price.

Also weighing on price was the retirement of Ardent’s highly respected CEO this year.

Ardent faces considerable headwinds with recent technical damage reversing the long-term trend. The depth of the recent price decline is enough to suggest the near trend is firmly down and will remain that way, and that any upside strength will be limited and short-lived.

A reversal of form will only come via a change in fundamental drivers, which appears unlikely in the near term. The risks remain to the downside with scope of returning to 2010 prices.

3. Flight Centre Travel Group

Flight Centre provides travel retailing services in Australia, the United States and the United Kingdom, as well as other travel-related services such as foreign exchange. After several years of strong rollouts and profit margin growth, Flight Centre has started to struggle with a lower Australian dollar and increased online competition.

Online travel agents continue to grab market share, and many analysts now believe the bricks and mortar presence is a disadvantage in the longer term because of higher operational costs.

Flight Centre appears to be at an important crossroads, both fundamentally and technically. Fundamentally, brokers and analysts are extensively divided on valuations for Flight Centre in the near term. Technically, we can see where both horizontal and diagonal price support is diverging on the charts.

This bigger-picture view remains neutral and does suggest this area of support may hold together. If so, a moderate bounce is possible but the key word is bounce and not a new trend higher. After any sustained period of price damage it is usual for prices to build a foundation before moving higher and this can take an extended period of time.

However, zooming in to lower timeframes (not shown) the technical damage portends near-term downside risks, and quite possibly a potential break of this important level of support. Either way, we anticipate continued high volatility with downside risks for Flight Centre.

4. Crown Resorts

Crown Resorts provides luxury accommodation, gaming, retail and conference facilities throughout its three operational segments – Crown Melbourne, Crown Perth and Crown Aspinalls in London.

The company plans to expand through its planned 6-star resort at Barangaroo in Sydney. FY15 financials missed expectations, with anti-corruption measures from Chinese authorities impacting on its Macau operations. Although the company trades below broker valuations, many analysts are unable to see a catalyst on the horizon to reverse current price trends.

Crown Resorts displays similar price action to Ardent Leisure and Flight Centre. Essentially, the strong trends flowing through 2012 to 2014 are now reversing and prices are testing moderate levels of prior support.

Should these levels of support circa $12 hold, then a bounce could see prices back toward $16. However, the scope of reversing the current downdraft is limited in the near term and risks remain to the downside.

About the author

Nick Radge is Head of Trading and Research at The Chartist, providing sharemarket strategies for serious investors. He has been involved in the markets since 1985, initially on the trading floor of the Sydney Futures Exchange and then international dealing desks in Sydney, London and Singapore. He is the author of several books, the most recent being Unholy Grails – A New Road to Wealth, which has received excellent reviews.

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