True, this may not be the best time to suggest buying shares in a travel agent, especially one such as Hogg Robinson, which generates two thirds of its revenue from Europe. But Hogg Robinson is not your standard travel agent. Besides, it's re-organising its pension fund and that may help make it more attractive to business rivals that already own big chunks of its equity.
- Revenue resilient through a recession
- Long-term contracts
- Debt reduction making progress
- Investment in fast growing division
- Pension fund deficit
- Euro zone woes
Hogg Robinson does corporate travel and that has some important differences from the standard package-holiday model. Hogg gets paid a flat fee for the number of executives it helps move around the world, whereas a standard travel agent works on a commission basis. When a recession bites, holiday makers cancel trips, or trade down from the Seychelles to Skegness, which hits your normal travel agent. For Hogg, the impact is less severe because it earns the same fee even if executives are flying economy instead of business class; as long as business people are still travelling, its revenue holds up. This was proven in 2008.
Hogg's customer list is also resilient because it includes blue chip clients, such as Allianz and BMW; and its Chinese office recently won the Shanghai Volkswagen account. These contracts are typically for up to five years; client retention rates are over 90 per cent and big clients often stay for over 10 years. While holidays get cancelled in a recession, business still needs to press the flesh.
HOGG ROBINSON (HRG) | ||||
|---|---|---|---|---|
| ORD PRICE: | 70p | MARKET VALUE: | £217m | |
| TOUCH: | 69.5-70p | 12M HIGH: | 72p | LOW: 43p |
| DIVIDEND YIELD: | 2.9% | PE RATIO: | 8 | |
| NET ASSET VALUE: | Negative | NET DEBT: | £68.9m | |
| Year to 31 Mar | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2009 | 351 | 15.4 | 2.4 | 1.2 |
| 2010 | 327 | 21.2 | 4.4 | 1.2 |
| 2011 | 358 | 28.9 | 6.3 | 1.5 |
| 2012* | 375 | 36.8 | 7.8 | 1.8 |
| 2013* | 396 | 39.7 | 8.7 | 2.0 |
| % change | +6 | +8 | +12 | +11 |
NMS: 4,000 Matched Bargain Trading BETA: 0.7 * Collins Stewart estimates (profits & earnings not comparable with historic figures) | ||||
In the current climate of corporate belt tightening, Hogg is also seeing growing demand for its bespoke expenses management system, Spendvision. Sales were up 18 per cent in the half-year to £7.1m and underlying profit was up by £500,000 to £900,000. An offer for Spendvision in March triggered Hogg to buy out the minority. True, Hogg's bosses don’t expect Spendvision to add to earnings until 2014, but its growth is exciting and it offers an additional sales channel for the core business.
There is still the problem of the pension-fund deficit, which has reached an unwieldy £145m after record low interest rates saw the actuarial deficit rise by another £30m. Hogg is inviting deferred members, who represent 40 per cent of the liabilities, to transfer out of the scheme. This offer has just expired.
The biggest external worries for Hogg are high oil prices and the impact of a slowdown in Europe. But the latest figures from the International Air Traffic Association (IATA) indicate that traffic is resilient. The IATA figures showed premium traffic within Europe - the best proxy for business travel - were flat in January, while, encouragingly, economy travel is still growing at 8 per cent.
