On the Beach invests for second-half booking boom

On the Beach (OTB) is counting on a flurry of last-minute bookings to boost profitability in the second half of its current financial year. Performance in the six months to 31 March clearly fell short of market expectations – with the shares retreating by over 13 per cent on the morning of the group’s interim results. 

Top-line figures nevertheless looked healthy. The total transaction value (TTV) of holidays booked across the period was £495mn, a 28 per cent uptick on the same time last year. This growth was driven by an absolute increase in the number of passenger bookings, as well as an increase in the value of vacations sold. 

On the Beach continues to target the fast-growing “premium” end of the package holiday market (where consumers pay in excess of £700 per person). TTV in this segment was up 17 per cent year on year in the first half to more than double pre-Covid levels. However, volumes at the value end of the market have yet to recover due to ongoing cost of living pressures. 

The company’s pre-tax loss for the half could in part be attributed to greater investments in marketing and IT infrastructure. Overheads increased by £4mn to £15.7mn due to a cloud migration project and increased hiring in the customer service department.

Management said it believes there is “significant” unsold bed and seat capacity in the market, and that bookings should pick up further as the peak summer season approaches. “This creates the potential for a very strong lates market as consumers seem determined to prioritise holiday spending,” wrote Peel Hunt analysts in a note. 

With its shares trading on a forward earnings multiple of 9.2 times for the full year, the shares are good value. Investors just have to hope consumers really do love their summer getaways. There are certainly riskier bets. Buy.

Last IC view: Buy, 94p, 9 March 2023