New: On The Beach / Boku Up­dates: Trac­sis / Le­gal & Gen­eral

We be­lieve the mar­ket is start­ing to re­gain con­fi­dence in the stock fol­low­ing ear­lier trad­ing blips

Shares - - CONTENTS -

On­line beach hol­i­days re­tailer On The Beach

(OTB) is look­ing more at­trac­tively priced with its shares cur­rently trad­ing 22% below their one-year high of 650p.

The shares were hit ear­lier this year as the mar­ket cor­rectly pre­dicted that trad­ing would be hit by the hot sum­mer weather mak­ing peo­ple less in­ter­ested in book­ing an over­seas hol­i­day.

Half year re­sults in May also dis­ap­pointed the mar­ket with earn­ings hit by the col­lapse of Monarch air­lines which im­pacted seat ca­pac­ity.

We only see th­ese is­sues as a tem­po­rary blip and would urge in­vestors to look at the com­pany’s longer term track record of gen­er­at­ing value. It has grown con­sis­tently ahead of the mar­ket, in­creas­ing its share from 9% to c22% of the beach hol­i­day sec­tor since 2011.

On The Beach al­lows cus­tomers to pack­age their own hol­i­day by pick­ing their own flights, ho­tels and trans­fers via its on­line plat­form. Every year, over 1.5m cus­tomers use the com­pany to plan their beach hol­i­day.

One of its ad­van­tages over ri­vals is a lack of in­ven­tory risk as the com­pany never spec­u­la­tively pre-buys ho­tel beds or flight seats.

In May, Nu­mis an­a­lyst Richard Stu­ber said On The Beach’s busi­ness model ben­e­fits from struc­tural growth in dy­namic, short-haul pack­age hol­i­days, its lean cost base and its mar­ket-lead­ing, per­son­alised prod­uct. ‘Earn­ings levers in­clude greater di­rectly-con­tracted beds (up to 68%), and strength­en­ing air­line dis­tri­bu­tion agree­ments,’ he added.

Beren­berg an­a­lyst Owen Shirley ar­gues in­vestors are giv­ing ‘vir­tu­ally zero value’ for the in­ter­na­tional roll­out in Swe­den, Den­mark and Nor­way with pos­i­tive news in­volv­ing th­ese ge­ogra­phies po­ten­tially act­ing as a share price cat­a­lyst.

He likes the re­cent ac­qui­si­tion of Clas­sic Col­lec­tion, a busi­ness-to-busi­ness dis­tri­bu­tion net­work which sells pre­mium hol­i­days for an av­er­age £1,750 per per­son. Most of the hol­i­days are sold through third party in­de­pen­dent travel agents.

Across the in­dus­try, over 5m hol­i­days are sold off­line with 3m of th­ese sold by in­de­pen­dent agents, of­fer­ing a new growth op­por­tu­nity for On The Beach.

Clas­sic Col­lec­tion is ex­pected to be loss-mak­ing near-term due to launch costs of putting the propo­si­tion on the ac­quirer’s tech­nol­ogy plat­form but is fore­cast to reach £2.5m to £3m in earn­ings be­fore in­ter­est, tax, de­pre­ci­a­tion and amor­ti­sa­tion by 2021 ac­cord­ing to Nu­mis.

Beren­berg’s Shirley be­lieves Clas­sic Col­lec­tion has the po­ten­tial to scale very quickly, which could make cur­rent as­sump­tions look ‘highly con­ser­va­tive’.

He cur­rently forecasts £33.6m ad­justed pre-tax profit in 2018 (2017: £28.5m), ris­ing to £41.2m in 2019 and £49.6m in 2020. (LMJ)

Newspapers in English

Newspapers from UK

© PressReader. All rights reserved.