EXP: Adventure Tourism - When the Thrill Fades
EXP: Adventure Tourism - When the Thrill Fades
In a Nutshell
Executive Summary
In a Nutshell
Experience Co operates Australia's largest skydiving network alongside a growing portfolio of high-ropes, reef, and wilderness adventure experiences. At A$0.099 against our fair value of A$0.093, the stock is overvalued by 6%. The key question is whether a pending strategic review of the underperforming skydiving division unlocks the full value of the adventure business hiding beneath it.
Investor Profiles
| Profile | Rating | Rationale |
|---|---|---|
| Income | ★★☆☆☆ | The dividend was only reinstated in FY25 after a seven-year absence, and we expect it to be cut from 0.25 cents to around 0.15 cents in FY26 as earnings compress. The yield sits below 2% even on the FY25 payment, and the 55% payout ratio leaves little buffer if trading conditions deteriorate further. Not suitable for income investors. |
| Value | ★★★☆☆ | The stock trades near adjusted net tangible assets of A$0.092 per share, which limits absolute downside. The 34% discount to leisure sector peers on EV/EBITDA (5.3x versus the sector's 8x) reflects structural drag from the skydiving division rather than mispricing. A clean exit from that division could close this gap materially, but that outcome is binary and uncertain. |
| Growth | ★★☆☆☆ | Revenue is forecast to contract 2.5% in FY26 before recovering at roughly 5% per annum thereafter. EPS swings wildly — down 38% in FY26 then doubling in FY27 — reflecting operating leverage on a thin base rather than genuine earnings power. Growth investors require compounding, not recovery arithmetic. Not suitable for growth investors. |
| Quality | ★★☆☆☆ | ROIC of 4.8% sits well below the 10% cost of capital, meaning the business destroys economic value on every incremental dollar invested. The Adventure Experiences segment operates at 28% EBITDA margins and is permit-protected, but the consolidated business is dragged down by a skydiving division facing structural labour challenges. Management credibility is moderate following three consecutive years of industrial action. Not suitable for quality investors. |
| Thematic | ★★★☆☆ | The "experiences over things" consumer thesis is intact, but EXP's data shows Australians increasingly choosing international experiences over domestic ones — a structural headwind for domestic adventure operators. The Aquarius II reef charter and Treetops metropolitan expansion are genuine premiumisation plays, but they sit inside a complex portfolio that dilutes the theme. Selective exposure, not a clean thematic. |
The best fit is the value investor with patience for a binary catalyst. The NTA floor at A$0.092 limits downside, the peer discount is real, and the Skydive Australia strategic review represents a credible event — management has formally acknowledged structural failure — that could close the gap between the consolidated value and the sum of the parts. The catch is that the catalyst resolves in August 2026 and the outcome is genuinely uncertain.
Executive Summary
Experience Co earns revenue from two businesses that have little in common beyond their outdoor settings. The Adventure Experiences division runs reef tours, high-ropes parks, and wilderness experiences at 28% EBITDA margins with genuine permit-protected pricing power. The Skydiving division — Australia's largest network plus operations in New Zealand — operates at half that margin and has been beset by industrial action for three consecutive years.
FY25 looked like a turning point. Revenue rose 6% to A$134m and underlying EBITDA jumped 34% to A$19.3m as post-COVID volumes recovered. Then 1H26 arrived with Cyclone Koji disrupting Tropical North Queensland, skydiving instructors resuming protected industrial action in January, and outbound travel continuing to draw Australians offshore rather than into domestic adventure experiences. Operating cash flow fell 41% in the half.
The investment case rests on a single question: what happens to the Skydiving division? Our sum-of-parts analysis suggests Adventure Experiences alone is worth A$0.182 per share — nearly double the consolidated value — because it would attract a premium standalone multiple that the blended portfolio cannot command. A strategic review is underway. If skydiving exits, the re-rating is material. If it stays, the conglomerate discount persists.
At A$0.099 versus our fair value of A$0.093, the stock is overvalued by 6%.
Results & Outlook
What happened?
FY25 delivered the strongest underlying EBITDA in the company's history at A$19.3m, driven by Treetops growth, Reef Unlimited expansion, and the first full year of the Aquarius II charter vessel. The gains were real but fragile. First-half FY26 confirmed the fragility: Cyclone Koji, recurring industrial action in skydiving, and softer domestic tourism demand compressed group EBITDA margins from 14.4% to an estimated 12%. The Adventure Experiences segment continued to grow revenue at 8%, but costs rose faster — EBITDA in that segment grew just 1%.
| Metric | FY25A | FY26E | FY27E | FY28E |
|---|---|---|---|---|
| Revenue (A$m) | 134.3 | 131.0 | 138.0 | 144.9 |
| EBITDA (A$m) | 19.3 | 15.7 | 17.7 | 18.1 |
| EBITDA Margin | 14.4% | 12.0% | 12.8% | 12.5% |
| EPS (A¢) | 0.42 | 0.26 | 0.52 | 0.49 |
| Free Cash Flow (A$m) | 3.3 | 2.9 | 4.9 | 5.2 |
| DPS (A¢) | 0.25 | 0.15 | 0.26 | 0.22 |
What's next?
FY26 is the trough. Revenue contracts slightly as the Wild Bush Luxury divestiture removes roughly A$7m from the base, and skydiving volumes remain subdued. The recovery from FY27 depends on three things coming right simultaneously: the RBA's rate-cutting cycle lifting domestic consumer confidence, Tropical North Queensland international arrivals recovering toward 80% of pre-COVID levels, and the Skydiving division's enterprise bargaining dispute reaching resolution.
The most significant near-term event is the Skydive Australia strategic review outcome, expected alongside FY26 results in August 2026. An exit would immediately change the valuation equation. Retention would confirm that the conglomerate discount — now a 34% gap to leisure sector peers — is structural rather than temporary. The Aquarius II ramp and Treetops metropolitan expansion provide organic growth regardless of that outcome, but neither is large enough to move the needle on its own.
Valuation & Risks
| Metric | Value |
|---|---|
| Fair Value | A$0.093 |
| Current Price | A$0.099 |
| Upside / Downside | −6% |
| Bull Case (20% probability) | A$0.152 |
| Bear Case (25% probability) | A$0.064 |
| Valuation Confidence | Low (58/100) |
The biggest risk is the one that management has already partially acknowledged: the Skydive Australia division may be structurally broken rather than cyclically challenged. Three consecutive years of protected industrial action — with no enterprise agreement in sight — suggests the underlying labour relations problem is not a negotiating disagreement but a fundamental mismatch between instructor expectations and the company's operating model. If the strategic review concludes with retention rather than exit, the division will continue absorbing management attention and capital while generating sub-10% EBITDA margins. That outcome locks in the 34% peer discount permanently and drags fair value toward our bear case of A$0.064.
A secondary risk is cost inflation in the Adventure Experiences segment. The 1H26 pattern — revenue up 8%, EBITDA up 1% — may not be a transitional anomaly. If labour, compliance, and marine operating costs continue rising faster than ticket prices, the segment's 28% margin erodes toward the group average, eliminating the primary argument for a portfolio re-rating.