Small Caps | Jun 25 2025
In the wake of several recent positive announcements by Kelsian Group, brokers weigh the chances of sustainable, improving returns.
-Can Kelsian Group recover after prolonged slump?
-Trading update and dual contract wins provide a boost
-Proposed divestment may improve returns
-Asymmetrical trade over the next year, says broker
By Mark Woodruff
Tourist services and transportation company Kelsian Group's ((KLS)) share price has trended lower since peaking above $10.00 in 2021, weighed down by a series of earnings downgrades over the past two years.
More recently, the stock has staged a strong recovery, climbing to $3.74 from $2.19 following a series of positive ASX announcements since early April.
Initially, Kelsian signalled its intention to divest its Australian tourism assets, aiming to "streamline the business, reduce debt, and improve shareholder value". The intention was followed by a positive trading update on May 7.
More recently, the company secured two significant workforce transportation contracts in the US state of Louisiana, one with engineering company Worley ((WOR)) and another with a subsidiary of US-based Bechtel Corp.
Bechtel is serving as the engineering, procurement, and construction (EPC) contractor for the LNG project owned and developed by Woodside Energy ((WDS)).
Some of broker Taylor Collison's concern that FY27 earnings may stagnate began to ease following the initial Worley contract news.
Despite acknowledging risks around contract delays and the mismatch between upfront growth capex and deferred returns, Taylor Collison sees Kelsian as an asymmetrical trade over the next 12 months.
Considerable gloss has been wiped from the Kelsian name after repeated earnings downgrades, notes the broker, so the market is probably going to need to see further contract wins or execution to believe earnings can grow into FY26 and FY27.
Promisingly, the contract win with Bechtel followed only days after Taylor Collison aired this view.
Reporting segments for Kelsian are: Tourism & Marine which includes the SeaLink and Captain Cook Cruises brands; Australian Bus, the largest segment which contributed 51% of FY24 group revenue; and International Bus, including All Aboard America! Holdings, Inc. (AAAHI).
AAAHI is a major US motorcoach operator acquired by Kelsian in June 2023 as the company's first entry into the large and growing US market.
This operator is now the second largest motorcoach operator in the United States, operating over 1,100 vehicles across 16 locations in the south and southwest, with a customer base spanning corporate, government, education, industrial, and tourism sectors.
Proposed divestment and improving returns
According to management, the potential divestment of the Australian tourism assets would reposition Kelsian as a more focused marine, bus, and motorcoach transport business.
Ord Minnett views the move as a positive step in stabilising the group's earnings base and enhancing shareholder returns, noting a potential -1-3% impact to EPS.
Management highlighted the assets generated approximately $160m in FY24 revenue, around 7% of group revenue, and contributed roughly 9% of operating earnings based on Ord Minnett's margin assumptions.
The Tourism portfolio includes 45 vessels, 52 buses and motorcoaches, and carries 2.6m passengers annually, with revenue rising to $171m in FY24 from $100m in FY22.
Assuming margins of between 13-16% and 5-7 times multiples, Canaccord Genuity estimates proceeds in the range of $130m-$180m, which could reduce net leverage to 1.8 times by June 30, 2026.
The continuing 'Marine segment', should the Tourism Portfolio be divested, would comprise Kelsian's SeaLink Kangaroo Island ferry service, Gladstone Ferries, SeaLink Southeast Queensland, which includes North Stradbroke Island, Southern Moreton Bay Islands and Moggill cross-river ferry services.
Townsville ferry services to Magnetic Island and Palm Island, part of SeaLink North Queensland, would also be retained, along with Transperth ferry services, and Brisbane River City Ferries.
Third quarter trading update in May
A strong share price rally followed the release of Kelsian's third-quarter earnings of $78m, supported by growth in domestic bus services and ramp-up of US contracts, observed Canaccord Genuity.
The broker highlighted the Q3 update marked a notable improvement versus the six-quarter average of approximately $66m.
Canaccord considers the fourth-quarter earnings target of $73m achievable, driven by continued strength in rail replacement services and expanding US operations.
Leverage reduced to 2.9 times from 3.2 times at December 2024, aided by a $14m earnings uplift and a -$32m reduction in net debt.
Despite earlier share price weakness, down -10% in 2025 and -55% over the prior 18 months, the broker maintained its view Kelsian shares remain attractively valued.
Further performance support was expected from the AAAHI ramp-up and a full contribution from Bankstown rail replacement, with management re-affirming FY25 guidance of $283-$295m in earnings and less than -$85m in sustaining capex, although management did guide to the lower-end of the earnings range.
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