Almost half of the bookings made through leading online hostel-booking company Hostelworld (HSW) are for rooms in Europe, so the reverberations on the travel industry from the Paris terror attack have been bad for business and the company's share price. Sentiment took another knock this month on news that Ryanair plans to enter the accommodation booking market. But for now Hostelworld, which was founded in Dublin in 1999 and floated on the main list in November last year, is king in this niche growth market, offering over 200m beds a night in more than 33,000 hostels in over 170 countries. And while an advertising drive is currently weighing on margins, the company's cash generation, healthy balance sheet and strong long-term growth prospects means the forecast 9 per cent dividend yield for next year may not prove as much of a long-shot as the rating would suggest. Indeed, chief executive Feargal Mooney and non-executive director Andy McCue were willing to take a near-£200,000 bet on the shares at the end of last month at 181p, and star UK income manager Neil Woodford has also been adding to his fund's stake, which now stands at over 22 per cent.
- 9 per cent prospective dividend yield
- Net cash
- Long-term growth prospects
- Directors and Woodford buying
- Ryanair Rooms launch
- Weak European bookings
While Hostelworld cannot control travellers' reactions to terror attacks, the things it has power over are moving in the right direction. For example, higher-commission bookings through its Elevate pricing programme - which gives hostel owners better website positioning - rose to 21 per cent of the total last year, from 15 per cent. Furthermore, a ramp-up in ad spending seems to be paying off with Hostelworld bookings rising 21 per cent in the second half of 2015. And the campaign has been successful enough for management to declare that investment as a percentage of net revenue will come in below the previous guidance of 45-50 per cent. The company is also benefiting from expansion in Asia and now counts South Korea as its seventh biggest market by nationality of traveller.
Nevertheless, last month Hostelworld revealed that weakness in Europe means bookings are expected to be marginally down this year. Looking to the long term, though, some major growth opportunities exist as booking moves online and the trend continues for more frequent travel by the younger demographic Hostelworld targets. The company should also benefit from broad-based improvements to the level of hostel accommodation worldwide. And the fragmented nature of hostel ownership puts it in a strong position to benefit from its scale.
And news earlier this month of the potential entry of Ryanair into the accommodation space in October caused further share price weakness. However, we think the Ryanair threat has been overstated, not least because it is already a competitor through an existing partnership with Booking.com - the second largest online travel agent for hostels.
| HOSTELWORLD (HSW) | ||||
|---|---|---|---|---|
| ORD PRICE: | 146p | MARKET VALUE: | £140m | |
| TOUCH: | 146-147p | 12-MONTH HIGH: | 304p | LOW: 146p |
| FORWARD DIVIDEND YIELD: | 9% | FORWARD PE RATIO: | 9 | |
| NET ASSET VALUE: | 174¢* | NET CASH: | € 11.4m** | |
| Year to 31 Dec | Turnover (€m) | Pre-tax profit (€m)*** | Earnings per share (¢)*** | Dividend per share (¢) |
|---|---|---|---|---|
| 2013 | 57.2 | 20.3 | na | nil |
| 2014 | 79.3 | 25.9 | na | nil |
| 2015 | 83.5 | 21.5 | 21.8 | 2.8 |
| 2016*** | 80.7 | 19.7 | 19.6 | 14.9 |
| 2017*** | 89.3 | 22.0 | 21.7 | 16.6 |
| % change | +11 | +12 | +11 | +11 |
Normal market size: 1,500 Matched bargain trading Beta: 0.01 *Includes intangible assets of €159m, or 166¢ a share **Excludes €2.2m of restricted cash ***Numis forecasts, adjusted PTP and EPS figures £1=€1.27 | ||||
