New Zealand Professional Investment Services Firm, Forsyth Barr

Forsyth Barr

New Zealand Professional Investment Services Firm

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

Research is the cornerstone of our advice. We have one of New Zealand's leading teams of analysts. Our global affiliations ensure comprehensive research coverage of all major investment markets.

Equity Bottom-Up

<h2>Serko<br>Booking a Bigger Cheque&nbsp;— Upgrade to OUTPERFORM</h2>
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<p><strong>OUTPERFORM</strong></p>
<p>We upgrade Serko (SKO) to OUTPERFORM as we reassess the likely magnitude of its Booking.com (BKNG) contract following its recent update and BKNG's 1H21 result. SKO confirmed that 150,000 active customers are now onboarded to the Booking for Business platform, a proportion of which we now estimate to be medium sized companies (50–250 employees) driving a greater number of transactions than we previously assumed. Additionally, BKNG's recent 1H21 result highlighted its increasing focus on the 'connected trip'. This provides us with greater confidence that SKO and BKNG's vision align.​​​​​​​ We maintain that the US market remains an unproven and highly competitive environment for SKO, and that pricing power in Australasia is not guaranteed; however, we upgrade our rating to OUTPERFORM based on the increased size of the estimated Booking.com contract. SKO is our preferred stock in the New Zealand technology sector.&nbsp;</p>
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<h3>What's changed?&nbsp;</h3>
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<li><strong>Booking.com contract revenue at FY24</strong>:&nbsp;​​​​​​​NZ$76m to NZ110m&nbsp;&nbsp;</li>
<li><strong>Target price</strong>:&nbsp;Increased from NZ$7.20 to NZ$8.24</li>
<li><strong>Rating</strong>:&nbsp;Upgraded from NEUTRAL to OUTPERFORM</li>
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<h3>What is&nbsp;SKO's&nbsp;Booking contract worth?</h3>
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<p>We estimate that the market is valuing the Booking.com&nbsp;Booking for Business contract with SKO at NZ$4.61&nbsp;per share in comparison to our updated valuation of NZ$5.07&nbsp;on&nbsp;a base case scenario. This makes up 70% of our DCF spot valuation of NZ$7.36.</p>
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<h3>Booking result shows commitment to the 'connected trip' while SME travel looks to lead travel recovery</h3>
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<p>We are encouraged by&nbsp;BKNG's&nbsp;aim to&nbsp;1) drive alternative accommodation (non-hotels) to combat the threat of&nbsp;Airbnb&nbsp;and 2) focus on the ‘connected trip’ in order to increase attachement rates (flights per hotel booking). We note also&nbsp;the improving speed of SME travel recovery globally, partly due to the 'fear of missing out' FOMO segment. This is supported by&nbsp;McKinsey's&nbsp;view that 'SMEs&nbsp;are likely to trigger a domino effect where one company's resumption of business trips will catalyse its rivals return to work-related travel'.&nbsp;​​​​​​​</p>
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<h3>Size distribution of&nbsp;SMEs&nbsp;in Europe increases our total trips booked estimate</h3>
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<div id="m_-1825721533641856638imc6o">
<p>Eurostat data from 2019 suggests there are 129m businesses in Europe of which ~84m are sized 1–250 employees and classed as an SME. Of these ~75% are considered small (1–50 employees), with the remaining ~25% considered medium. This lifts the potential number transaction per SME considerably, driving greater revenue generation for SKO's joint venture on the Booking.com platform.&nbsp;</p>
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<div><strong>Jamie Foulkes</strong></div>
<div><a href="mailto:jamie.foulkes@forsythbarr.co.nz" target="_blank" rel="noopener">jamie.foulkes@forsythbarr.co.<wbr>nz</a></div>
<div>+64 4 914 2217</div>
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<div><strong>Mark Robertson</strong></div>
<div><a href="mailto:mark.robertson@forsythbarr.co.nz" target="_blank" rel="noopener">mark.robertson@forsythbarr.co.<wbr>nz</a></div>
<div>+64 4 495 5264</div>
</div>
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Serko Booking a Bigger Cheque&nbsp;— Upgrade to OUTPERFORM

OUTPERFORM
We upgrade Serko (SKO) to OUTPERFORM as we reassess the likely magnitude of its Booking.com (BKNG) contract following its recent update and BKNG's 1H21 result. SKO confirmed that 150,000 active customers are now onboarded to the Booking for Business platform, a proportion of which we now estimate to be medium sized companies (50–250 employees) driving a greater number of transactions than we previously assumed. Additionally, BKNG's recent 1H21 result highlighted its increasing focus on the 'connected trip'. This provides us with greater confidence that SKO and BKNG's vision align.​​​​​​​ We maintain that the US market remains an unproven and highly competitive environment for SKO, and that pricing power in Australasia is not guaranteed; however, we upgrade our rating to OUTPERFORM based on the increased size of the estimated Booking.com contract. SKO is our preferred stock in the New Zealand technology sector.&nbsp;


What's changed?&nbsp;



Booking.com contract revenue at FY24:&nbsp;​​​​​​​NZ$76m to NZ110m&nbsp;&nbsp;
Target price:&nbsp;Increased from NZ$7.20 to NZ$8.24
Rating:&nbsp;Upgraded from NEUTRAL to OUTPERFORM



What is&nbsp;SKO's&nbsp;Booking contract worth?


We estimate that the market is valuing the Booking.com&nbsp;Booking for Business contract with SKO at NZ$4.61&nbsp;per share in comparison to our updated valuation of NZ$5.07&nbsp;on&nbsp;a base case scenario. This makes up 70% of our DCF spot valuation of NZ$7.36.


Booking result shows commitment to the 'connected trip' while SME travel looks to lead travel recovery


We are encouraged by&nbsp;BKNG's&nbsp;aim to&nbsp;1) drive alternative accommodation (non-hotels) to combat the threat of&nbsp;Airbnb&nbsp;and 2) focus on the ‘connected trip’ in order to increase attachement rates (flights per hotel booking). We note also&nbsp;the improving speed of SME travel recovery globally, partly due to the 'fear of missing out' FOMO segment. This is supported by&nbsp;McKinsey's&nbsp;view that 'SMEs&nbsp;are likely to trigger a domino effect where one company's resumption of business trips will catalyse its rivals return to work-related travel'.&nbsp;​​​​​​​


Size distribution of&nbsp;SMEs&nbsp;in Europe increases our total trips booked estimate


Eurostat data from 2019 suggests there are 129m businesses in Europe of which ~84m are sized 1–250 employees and classed as an SME. Of these ~75% are considered small (1–50 employees), with the remaining ~25% considered medium. This lifts the potential number transaction per SME considerably, driving greater revenue generation for SKO's joint venture on the Booking.com platform.&nbsp;



Jamie Foulkes
jamie.foulkes@forsythbarr.co.nz
+64 4 914 2217





Mark Robertson
mark.robertson@forsythbarr.co.nz
+64 4 495 5264



Serko: Booking a Bigger Cheque — Upgrade to OUTPERFORM

<h2>Serko<br>Blue Skies Ahead but Clouds on the Horizon</h2>
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<p><strong>NEUTRAL</strong></p>
<p>We initiate coverage of&nbsp;Serko&nbsp;(SKO) with a NEUTRAL rating. We are attracted to&nbsp;SKO's&nbsp;highly ambitious and credible management team, dominance in Australasia and a highly-rated product but note the competitive market structure in the US, historic difficulty in capturing the SME market in Europe and uncertainty around pricing power in Australasia. This is corroborated by speaking with travel consultants, Travel Management Companies (TMCs), corporate travel bodies and competitors.&nbsp;SKO's&nbsp;ambition is to reach NZ$100m of revenue by FY24 which we expect the company to comfortably achieve. We focus the bulk of this report on the key drivers that will determine&nbsp;SKO's&nbsp;longer term outlook and factors that will likely impact sentiment towards the stock. SKO is currently New&nbsp;Zealand's&nbsp;'In Vogue' technology stock and we expect the share price to be supported in the near term by potential TMC contract wins and progression of the&nbsp;onboarding&nbsp;of Booking.com for Business. However, we believe it is premature to be more excited about&nbsp;SKO's&nbsp;longer term outlook, noting the stock has had an excellent run of late and currently offers limited valuation upside in our view.&nbsp;</p>
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<h3>US market is large but dominated by multi-nationals which serve a highly sticky customer base</h3>
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<p>Although SKO has signed contracts with 11 US&nbsp;TMCs&nbsp;to date&nbsp;we are yet to see this translate into material reported US revenue. We understand competitor Concur locks the majority of US&nbsp;TMCs&nbsp;into exclusivity contracts to provide a proportion of travel content (often for free)&nbsp;after cross-selling a range of critical expense products to its corporate clients, resulting in a reduction in obtainable market share for SKO. We await to see if COVID-19 related disruption has reduced the stickiness of corporate clients towards incumbents. Following global travel restrictions due to COVID-19, CWT (the third largest TMC in the US) is exhibiting severe financial distress with its credit rating downgraded to C (lowest rating), dampening&nbsp;SKO's&nbsp;ambition of providing 10% of its content.&nbsp;</p>
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<h3>Booking.com a golden opportunity?</h3>
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<p>In 2019 SKO signed an agreement with Booking.com (BKNG) to provide the front end of its corporate travel platform Booking.com for Business. This public validation of&nbsp;SKO's&nbsp;proposition was combined with&nbsp;BKNG taking a 4.7% stake in SKO during a capital raise, aimed to accelerate&nbsp;the development of its flagship product, Zeno. While the contract with BKNG does open the door to the European SME market, we note a number of competitors have tried and failed in this space due to the lack of loyalty and preferred suppliers by&nbsp;SMEs. AMEX GBT estimated that only a quarter of European&nbsp;SMEs&nbsp;use a TMC to manage corporate travel.&nbsp;</p>
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<h3>Raising Average Revenue per Booking (ARPB) in Australasia may prove problematic</h3>
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<div id="m_-3770854082112090183iwwht-2">
<p>SKO has done an excellent job of capturing the Australasian market, penetrating 98% of TMCs and providing content to 75%–80% of the enterprise customer base. However we do not believe it offers material content differentiation that competitors such as Amadeus Cytric Travel cannot offer. We expect SKO to increase attachment rates over time, but question its ability to raise transaction fees.&nbsp;</p>
</div>
<div>
<div>
<div><strong>Jamie Foulkes</strong></div>
<div><a href="mailto:jamie.foulkes@forsythbarr.co.nz" target="_blank" rel="noopener">jamie.foulkes@forsythbarr.co.<wbr>nz</a></div>
<div>+64 4 914 2217</div>
<div></div>
</div>
</div>
<div>
<div>
<div><strong>Mark Robertson</strong></div>
<div><a href="mailto:mark.robertson@forsythbarr.co.nz" target="_blank" rel="noopener">mark.robertson@forsythbarr.co.<wbr>nz</a></div>
<div>+64 4 495 5264</div>
</div>
</div>

Serko Blue Skies Ahead but Clouds on the Horizon

NEUTRAL
We initiate coverage of&nbsp;Serko&nbsp;(SKO) with a NEUTRAL rating. We are attracted to&nbsp;SKO's&nbsp;highly ambitious and credible management team, dominance in Australasia and a highly-rated product but note the competitive market structure in the US, historic difficulty in capturing the SME market in Europe and uncertainty around pricing power in Australasia. This is corroborated by speaking with travel consultants, Travel Management Companies (TMCs), corporate travel bodies and competitors.&nbsp;SKO's&nbsp;ambition is to reach NZ$100m of revenue by FY24 which we expect the company to comfortably achieve. We focus the bulk of this report on the key drivers that will determine&nbsp;SKO's&nbsp;longer term outlook and factors that will likely impact sentiment towards the stock. SKO is currently New&nbsp;Zealand's&nbsp;'In Vogue' technology stock and we expect the share price to be supported in the near term by potential TMC contract wins and progression of the&nbsp;onboarding&nbsp;of Booking.com for Business. However, we believe it is premature to be more excited about&nbsp;SKO's&nbsp;longer term outlook, noting the stock has had an excellent run of late and currently offers limited valuation upside in our view.&nbsp;


US market is large but dominated by multi-nationals which serve a highly sticky customer base


Although SKO has signed contracts with 11 US&nbsp;TMCs&nbsp;to date&nbsp;we are yet to see this translate into material reported US revenue. We understand competitor Concur locks the majority of US&nbsp;TMCs&nbsp;into exclusivity contracts to provide a proportion of travel content (often for free)&nbsp;after cross-selling a range of critical expense products to its corporate clients, resulting in a reduction in obtainable market share for SKO. We await to see if COVID-19 related disruption has reduced the stickiness of corporate clients towards incumbents. Following global travel restrictions due to COVID-19, CWT (the third largest TMC in the US) is exhibiting severe financial distress with its credit rating downgraded to C (lowest rating), dampening&nbsp;SKO's&nbsp;ambition of providing 10% of its content.&nbsp;


Booking.com a golden opportunity?


In 2019 SKO signed an agreement with Booking.com (BKNG) to provide the front end of its corporate travel platform Booking.com for Business. This public validation of&nbsp;SKO's&nbsp;proposition was combined with&nbsp;BKNG taking a 4.7% stake in SKO during a capital raise, aimed to accelerate&nbsp;the development of its flagship product, Zeno. While the contract with BKNG does open the door to the European SME market, we note a number of competitors have tried and failed in this space due to the lack of loyalty and preferred suppliers by&nbsp;SMEs. AMEX GBT estimated that only a quarter of European&nbsp;SMEs&nbsp;use a TMC to manage corporate travel.&nbsp;


Raising Average Revenue per Booking (ARPB) in Australasia may prove problematic


SKO has done an excellent job of capturing the Australasian market, penetrating 98% of TMCs and providing content to 75%–80% of the enterprise customer base. However we do not believe it offers material content differentiation that competitors such as Amadeus Cytric Travel cannot offer. We expect SKO to increase attachment rates over time, but question its ability to raise transaction fees.&nbsp;



Jamie Foulkes
jamie.foulkes@forsythbarr.co.nz
+64 4 914 2217





Mark Robertson
mark.robertson@forsythbarr.co.nz
+64 4 495 5264



Serko: Blue Skies Ahead but Clouds on the Horizon

New Zealand

Serko Ltd operates as an online corporate travel booking and expense management company.

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Serko Ltd (SKO NZ)

Serko: Booking a Bigger Cheque — Upgrade to OUTPERFORM

SerkoBooking a Bigger Cheque — Upgrade to OUTPERFORM OUTPERFORM We upgrade Serko (SKO) to OUTPERFORM as we reassess the likely magnitude of its...

Forsyth Barr

Serko: Blue Skies Ahead but Clouds on the Horizon

SerkoBlue Skies Ahead but Clouds on the Horizon NEUTRAL We initiate coverage of Serko (SKO) with a NEUTRAL rating. We are attracted...

Forsyth Barr

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