Research: Consumer
Hostelworld’s pioneering and fast-evolving ‘social’ strategy is delivering aplenty. Material outperformance of the hostel market (FY23 bed nights sold up 30% vs industry 8%) and low-cost acquisition and retention of high-value customers (over a million social members after just 18 months) confirm the success of the company’s app-centric model, which taps into the social media habits of its target demographic to mutual benefit. With reducing marketing percentage of revenue on track to meet the FY25 low-end target of 45% (48% in H223), the boon of higher leverage from an asset-light platform may be reinforced by the move to cloud-based hosting, development of complementary acquisition channels and use of AI. FY23 EBITDA of €18.4m clearly ahead of €17.5–18.0m guidance and a ‘strong start to 2024’ suggest company targets of c 20% EBITDA margin on c €106m revenue in FY25 are well in hand.
Hostelworld |
Backpacking them in
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Travel and leisure |
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29 April 2024 |
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Hostelworld’s pioneering and fast-evolving ‘social’ strategy is delivering aplenty. Material outperformance of the hostel market (FY23 bed nights sold up 30% vs industry 8%) and low-cost acquisition and retention of high-value customers (over a million social members after just 18 months) confirm the success of the company’s app-centric model, which taps into the social media habits of its target demographic to mutual benefit. With reducing marketing percentage of revenue on track to meet the FY25 low-end target of 45% (48% in H223), the boon of higher leverage from an asset-light platform may be reinforced by the move to cloud-based hosting, development of complementary acquisition channels and use of AI. FY23 EBITDA of €18.4m clearly ahead of €17.5–18.0m guidance and a ‘strong start to 2024’ suggest company targets of c 20% EBITDA margin on c €106m revenue in FY25 are well in hand.
‘Social’ strategy has an ‘incredibly long runway’
Notwithstanding hostels’ broadening appeal as a value offer for families and business travellers, growth from Hostelworld’s millennial/Gen Z core (c 80% of custom) is being sharply accentuated by the company’s social network on its mobile apps, launched in H122. Capitalising on demand for a social travel experience, its provision of customer access via chat groups to fellow travellers at the same hostels and cities has helped drive a significantly higher booking frequency and app usage for follow-on bookings (2x and 3x respectively) compared to non-social members. Consequent marketing efficiency, boosted by social member word of mouth recommendation, is optimising the cost of customer acquisition, while growing engagement through richer content (eg traveller profiles and hostel events (Linkups)) is boosting recurring revenue. 2024 promises ‘more of the same’.
Clear pay-off in H223
With H123 year-on-year comparisons flattered by the resumption of cross border travel post COVID-19, H223 nonetheless continued to endorse the ‘social’ model. Buoyant trading (bookings up c 15%) drove 14% net revenue growth (higher but for an adverse sales mix), with conversion to a near-doubling of EBITDA margin to 28% helped by app-led marketing savings (costs % per revenue 48% vs 51% in H1). Associated strong cash flow saw net debt down by a quarter from June 2023.
Valuation: Promising
Market recognition of Hostelworld’s prospects (forecasts well ahead of guidance) seems deserved. On 11x FY24e EV/EBITDA, it differs from a classic online travel agency, with its social strategy and customer retention characteristics akin to a platform business.
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Consensus estimates
Source: LSEG and company-compiled consensus. Note: *Excluding exceptionals. |
EDISON QUICKVIEWS ARE NORMALLY ONE-OFF PUBLICATIONS WITH NO COMMITMENT TO WRITING ANY FOLLOW UP. QUICKVIEW NOTES USE CONSENSUS EARNINGS ESTIMATES.
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Research: Industrials
Epwin’s FY23 results were robust and management navigated inflationary pressures well. Despite some market headwinds, we have increased our FY24 and FY25 underlying operating profit estimates for the second time this year. Long-term, well-established growth trends imply that Epwin is well-placed to leverage off increasing demand for its energy-efficient and low-maintenance building products. Epwin offers an attractive investment case with the potential for uplifts from additional self-funded M&A. It trades on an FY24e P/E ratio of 8.3x, materially below the long-term average of 10.5x, and yields c 6%. The extended share buyback programme should help support the share price.