On The Beach does what it can

Travel specialist On the Beach (OTB) faces the near certainty that whatever action management takes, its medium-term future hangs on the uncertain whim and lethality of a microbial virus. The imposition, post the year-end, of more restrictions has affected sentiment towards travel firms just as a potential recovery, of sorts, looked feasible. Against that context, the results themselves were always going to be somewhere on the scale of awful in investors' eyes, but there are signs that a stable balance sheet and positive cash flows have bought the company some breathing space in the short term.

In this case, time has literally been bought, with a placing in July that raised £26m, combined with access to a revolving credit facility of £75m that not been drawn since May last year. That fundraising, along with a slightly better summer season, helped to reverse the company’s negative working capital position compared with last year.

However, it is clear from the accounts that OTB will still be dealing with a long tail of issues once something approaching travel normality returns. For example, management had to make £3.3m of provisions for airline debtors, alone; airlines that have cancelled flights but not yet refunded OTB for the cost of the disruption.

Investors will really have to guess OTB’s prospects when the summer holiday booking season gets under way in January. The best guess is that this will be delayed as people assess the options. Predictably, analyst forecasts cover a broad spread and house broker Numis currently forecasts EPS for 2022 of 7p, rising to 20p in 2023, giving a forward price/earnings ratio of 32, falling to 11. Wait for clearer skies. Hold.

Last IC View: Hold, 359p, 15 Jun 2021