Kelsian shares plunge after release of new capital management policy

Investors have been left unimpressed with transport and tourism company Kelsian’s new capital management plan, sending its shares to a five-year low.

Kelsian managing director Clint Feuerherdt.

Transport and tourism company Kelsian is making a play for new bus contracts in the UK and exploring opportunities to expand its US network after unveiling details of a new capital management framework designed to maximise shareholder returns.

The new “capital management and allocation framework” includes new targets for capital expenditure, leverage and return on capital, as well as a revised dividend payout ratio of 40-60 per cent of underlying profit, down from 50-70 per cent.

Kelsian said the new targets would give it the flexibility to capitalise on organic and inorganic growth opportunities, including in its overseas markets – the US, UK and Singapore – where it operates a public and private bus services.

Coinciding with its interim results on Wednesday, Kelsian announced a £1m ($2m) acquisition of UK bus company Huyton Travel, which services the Liverpool area with 65 vehicles and driver training facilities.

While described as a “modest” acquisition, Kelsian’s outgoing managing director Clint Feuerherdt said it would give the company a foothold in the UK, where bus services were being re-regulated and brought under the control of local transport authorities, under a franchising scheme introduced by the Labour government.

“It’s becoming a model that looks much more like Australia, rather than the deregulated model,” he said after handing down the company’s first-half results.

“We’re obviously very well experienced in this space, and we’re positioning ourselves in that market to take advantage of that structural change. We’re talking about in the order of 10,000 buses over the next five years that will come to market. So quite a large opportunity

to support that.

“So to have a contractual relationship with a client, have a geographical base, have a place to train drivers and park buses, and obviously be an operator in that market is quite meaningfully important when we go into a process like that.”

Greater Manchester recently completed franchising of its bus services, and Liverpool is the next major city that will go out to tender later this year.

Kelsian previously operated bus services in London via its Tower Transit subsidiary but sold them off several years ago

Meanwhile in the US, Mr Feuerherdt said the new Trump administration had already “spurred a lot of activity” across Kelsian’s employee transfer services.

“We do a lot of military movements for the United States government, and there’s been a lot more military personnel moving around the country. So certainly that was an immediate kind of impact to our business,” he said.

“To the extent that people are going to build more manufacturing facilities or plants, or where there’s mass movements of thousands of people, that’s generally where we play, and there is a very heightened level of activity, certainly over the last three or four months in that area.”

Kelsian delivered a small increase in first-half earnings and says it’s on track to meet its full year guidance for underlying EBITDA of between $283m and $295m.

Underlying EBITDA was up 1.3 per cent to $132.2m in the six months to December, on a 9.1 per cent increase in revenue to $1.07bn.

Statutory net profit came in at $20.1m, down from $28.1m in the previous corresponding period.

The company will pay a fully franked interim dividend of 8 cents per share, unchanged from the previous corresponding period.

The result and details of the capital management plan disappointed investors, who sent the shares plummeting 17.7 per cent in afternoon trade to $2.98.

Kelsian is currently undertaking a review of its portfolio of bus contracts, ferry services and tourism assets, and told shareholders on Wednesday that an update would be provided at or before the company’s full-year results announcement.

Last week the company agreed to sell and lease back three bus depots in Western Australia for a combined $20.3m.

Mr Feuerherdt, who will hand over the reins to the company’s US division head Graeme Legh in April, said some tourism operations, such as Kelsian’s Captain Cook cruises on Sydney Harbour, were performing well on the back of higher international visitation to Australia, while others like the ferry service to K’gari (Fraser Island) were struggling due to more Australians opting for overseas travel over domestic getaways.

Originally published as Kelsian shares plunge after release of new capital management policy