Research: Consumer
The increase of 22% in booked total transaction value (TTV) both in H124 and for this summer, driven by successful expansion into premium and long haul and backed by its pioneering perks, confirm On the Beach’s (OTB’s) progress in addressing a market it estimates to be 5x more valuable than its core Value (3*) business (now just 25% of bookings) as well as more dynamic. Another ‘very big deal’ for OTB is its new ‘transformational’ partnership with Ryanair, its most significant low-cost carrier, ensuring free and fair access to seat supply and marking a more positive relationship, given outstanding litigation on historical refunds. With improved operational leverage yielding a near doubling of adjusted EBITDA in its seasonally quieter H124, OTB expects to meet FY24 market forecasts thanks to similar H2 dynamics, bolstered by B2B restructuring.
On the Beach |
Feeling festive
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Travel and leisure |
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24 May 2024 |
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The increase of 22% in booked total transaction value (TTV) both in H124 and for this summer, driven by successful expansion into premium and long haul and backed by its pioneering perks, confirm On the Beach’s (OTB’s) progress in addressing a market it estimates to be 5x more valuable than its core Value (3*) business (now just 25% of bookings) as well as more dynamic. Another ‘very big deal’ for OTB is its new ‘transformational’ partnership with Ryanair, its most significant low-cost carrier, ensuring free and fair access to seat supply and marking a more positive relationship, given outstanding litigation on historical refunds. With improved operational leverage yielding a near doubling of adjusted EBITDA in its seasonally quieter H124, OTB expects to meet FY24 market forecasts thanks to similar H2 dynamics, bolstered by B2B restructuring.
‘Huge’ incremental opportunity
Notwithstanding the material improvement in Value volumes and average booking value (ABV) in FY23 (TTV up by a third), which made a tough comparison for H124 (+1%), and the expected benefits to Value of the new Ryanair agreement and continued enhancement of perks, the development of premium and long haul markets remains key to OTB’s growth. The scope for lucrative marginal revenue is evident in Premium (termed as 5*), whose ABV is estimated by management to be c 2.5x that of Value in a segment of similar volume. With already a 5% market share and accounting for over a third of H124 TTV with a 41% increase, Premium has clearly achieved brand credibility away from Value as well as providing greater resilience and visibility through earlier booking. Long Haul (to date notably Dubai, Mexico and the Dominican Republic) is seen to offer a revenue opportunity of similar size to Premium, while as yet just 9% of H124 TTV.
Intended loss elimination
In the face of increasing competition the proposed restructuring of B2B by way of a single brand (Classic Collection) and agency operating model is expected to return the channel to profitability (EBITDA loss £1.6m in H124 and £0.9m in FY23) thanks to economies of scale. While management remains committed to its tour operator business, CCH will be shown for FY24 as discontinued. This should also simplify modelling as CCH as a principal reported revenue gross and on a travelled basis.
Valuation: Clear potential
In the absence of a direct UK peer for valuation purposes OTB looks attractive on PEG of just 0.4 FY24e, based on 25% consensus earnings growth and given the trading momentum, restructuring benefits and long-term growth opportunities.
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Consensus estimates
Source: Company-compiled and LSEG. Note. *Excluding exceptionals. **£32.2m pro forma continuing operations following planned B2B changes (CCH to be classified as discontinued). |
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: Metals & Mining
This morning, Pan African announced that it may have been in technical breach of the net asset test when it paid out dividends to shareholders in the five years from FY19–23 and also when it instigated its share buyback programme in 2022. As attested to by the fact that it took five years to be noticed, the apparent breach arises from the nexus of an arcane bit of legislation and a curious distinction between the presentation currency of the group (the US dollar) and its functional currency (the South African rand) and the effect of the depreciation of the latter against the former on the distributable versus undistributable reserves of Pan African Resources. Fortunately, there is a relatively simple remedy that involves a court sanctioned capital reduction process via a clever reserve juggling act. There will be no change to the number of Pan African shares in issue. However, it will require shareholder assent, which is the reason for PAF’s announcement. We believe it is in shareholders’ interest to vote in favour of these resolutions at its forthcoming general meeting on 10 June.