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Booking volumes cool as Hostelworld sticks with margins

Making each booking more profitable means volume has been lost, but cash generation remains strong and the dividend appears healthy
August 23, 2016

Total bookings have fallen slightly at Hostelworld (HSW), but it's not as straightforward as the numbers suggest. Reservations made through its Hostelworld site - as opposed to those through other brands it owns - rose 16 per cent to 3m. Chief executive Feargal Mooney said these were lower-cost and higher-margin, which is positive in the long term. The strategy at website Hostelbookers.com has also shifted from growing volumes and market share prior to Hostelworld's purchase of the site, to one of profitability. This means bookings here halved to 0.5m and management took an €8.2m impairment charge - without which it would have registered an operating profit.

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The value per booking has also dropped, but this was partially due to a surge in reservations across Asia, where average booking values are half that of Europe. Hostelworld brand bookings to the continent rose 30 per cent and it now accounts for a fifth of all reservations, according to Mr Mooney.

A total of 45 per cent of Hostelworld brand bookings were made on mobile devices, with app bookings accounting for 26 per cent. The app is important: company data shows that, on average, three bookings are made per app user compared with two for desktop computer customers.

Analysts at Numis expect pre-tax profits of €19.7m for the year to December 2016, leading to EPS of 19.8¢, down from €21.5m and 21.8¢ in 2015.

HOSTELWORLD (HSW)
ORD PRICE:170pMARKET VALUE:£163m
TOUCH:168-170p12-MONTH HIGH:304pLOW: 127p
DIVIDEND YIELD:5.2%PE RATIO:NA
NET ASSET VALUE:166¢*NET CASH:€18.7m**

Half-year to 30 JunTurnover (€m)Pre-tax profit (€m)Earnings per share (¢)Dividend per share (¢)†
201543.9-14.6-4930.0
201640.2-5.5-4.94.8
% change-9-62-99-

Ex-div: 1 Sep

Payment: 27 Sep

*Includes intangible assets of €145m or 152¢ a share **Includes €2.2m held in restricted cash †Maiden dividend of 2.75¢ per share paid in May 2016 for period from listing on 2 November 2015 to 31 December 2015.

£1=€1.16