Allegro Funds buys Great Southern Rail from Serco

[ozbob]

Brisbanetimes --> Allegro Funds buys Great Southern Rail from Serco

Private equity firm Allegro Funds sees upside in luxury travel from the drop in the Australian dollar.

Private equity firm Allegro Funds has acquired the company behind luxury train services The Ghan and The Indian Pacific trains from British giant Serco, and is aiming to capitalise on the falling Australian dollar to help improve growth in passenger numbers for luxury travellers.

Serco is listed on the London Stock Exchange and since 1999 has owned the passenger and rail group Great Southern Rail, which also operates The Overland passenger service between Adelaide and Melbourne. Serco has a market capitalisation of £930 million ($1.7 billion) and its Asian-Pacific division operates the rail services.

Allegro founding partner and managing director Adrian Loader said there were already strong opportunities in luxury end travel and this has been further boosted by the drop in the Australian dollar, which gives overseas tourists better spending power and makes domestic travel more appealing to Australians compared with the cost of overseas travel.

"I think it's a winner," he said. "It works both ways".

Mr Loader said about 25 per cent of passengers on The Ghan, which travels from Adelaide to Darwin, and The Indian Pacific, which goes from Sydney to Perth, were from overseas.

Revenues at Great Southern Rail are around $100 million annually.

"It's been stable," Mr Loader said.

But the number of higher-end luxury travellers had been growing and there were plans to add more carriages to The Ghan and The Indian Pacific to take advantage of improved demand.

Mr Loader said he didn't want to give an exact price tag because there were cash and non-cash components to the deal, but he did say it was "below $20 million".

He said The Overland is more pitched at the value end of the commuter market, and the big growth potential was at the luxury end of the train travel market with the other two services.

Those two journeys across the outback were the equal of the world's best rail journeys, and weren't in competition with airlines where passengers just wanted to get from one city to the next quickly.

"It's more like a cruise ship than it is a budget airline," he says of the train travel experience through the outback. The Indian Pacific journey travels 4,350 km from Sydney to Perth via Adelaide.

"They're very well-known and Australian icon brands," Mr Loader said.

The Australian dollar was trading as high as $US1.10 in late 2011 but has fallen to $US0.77 following the collapse in commodity prices which has brought some relief to the manufacturing sector and to Australian exporters.

It is the second transport-related acquisition made by Allegro in the past seven months, with the firm having bought bus manufacturer Custom Coaches in August 2014 after it hit financial strife and was placed in administration. Customer Coaches operates a bus body manufacturing factory at Villawood in Sydney.

Mr Loader said Allegro would be funding the Great Southern Rail acquisition with 100 per cent equity and Great Southern Rail's chief executive officer Chris Tallent will be staying on.

Allegro has around $450 million in capital under management across its portfolio from institutional investors and superannuation funds.