The domestic travel stocks set to benefit from Australia’s border lockdown
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International travel is out but domestic tourism is in, and a number of ASX small caps could be well placed to benefit.
For established travel companies such as Qantas and Flight Centre, the anti-travel thematic has been a well-noted headwind.
But as investment analyst Joshua Baker pointed out to Stockhead recently, a catalyst as disruptive as COVID-19 has a unique impact on where capital flows are channelled.
In view of that we caught up with another pro investor, Ron Shamgar from TAMIM Asset Management, which holds a number of positions in stocks tied to the domestic travel theme.
Assessing the trend, Shamgar said TAMIM took the view that with borders locked down, consumer resources will be diverted into domestic travel.
And in addition, not as much of that travel will be on public transport.
Those two factors supported the firm’s investment in National Tyre & Wheel (ASX:NTD), as “more people use their cars and wear out their tyres”, Shamgar said.
“They recently acquired Tyres 4U, which was one of their largest competitors in the local market,” Shamgar said.
“So that now makes them a business deriving around $450m in annual revenue, and we think the combined group can drive efficiencies in those EBITDA margins as well.”
Shamgar also flagged an interesting trend in Australia’s post-pandemic economy – increased demand for second-hand vehicles.
As evidence, he said used-vehicle sales rose by around 25 per cent in August from the prior corresponding period.
That shift was one of the catalysts for TAMIM’s investment in Money3 Corp (ASX:MNY), which provides financing services for car loans.
“They ended up doing really well through the pandemic and we think they’ll do even better going forward,” he said.
“Then you’ve got increased activity for fleet management companies such as Eclipx Group (ASX:ECX).”
“They provide fleet services for governments and large corporate clients. And when those vehicles come to the end of their lease – usually around 3/4 years – they take them back and sell them in the second-hand car market.”
“So again they’ve benefited from that broader demand. And they’ve also simplified their business by exiting non-core divisions.”
“So we think they’re a takeover target for some of the other fleet management companies like McMillan Shakespeare (ASX:MMS),” Shamgar said.
Looking elsewhere for indirect opportunities tied to domestic travel, TAMIM also has a position in Global Traffic Network (ASX:GTN), the broadcast radio advertising play.
Within Australia, GTN is the largest supplier of traffic information reports to existing radio networks.
And in return, “they get access to advertising spots which they sell to advertisers on a national basis”, Shamgar said.
At around 40c, GTN shares are yet to fully rebound to the company’s pre-crisis level of around 80c.
“They were obviously hurt a bit during lockdowns, but they’re emerging from that as people travel more and spend more time in car,” Shamgar said.
“We also think it’s a stock tied to a rebound in economic growth, as advertisers fill their pre-crisis budgets on radio spend.”
Looking ahead, Shamgar said stocks tied to international travel could be poised to rally strongly.
But to do so they’ll need an unexpected catalyst, such as the global rollout of a successful COVID-19 vaccine.
In the meantime, the companies in TAMIM’s domestic travel portfolio are positioned to outperform “regardless of whether international travel is or isn’t approved”, Shamgar said.
“Those other (international travel) companies are the ones to buy as soon as we get some clarity on timing,” he said.