On The Beach Share Discussion Threads

[darrin1471] 14/2/2024 20:35

Bloomberg) -- Ryanair Holdings Plc is nearing a deal to provide flights for package holiday giant TUI AG, according to people familiar with the matter, striking a fresh blow in its battle against online travel agents.

A Ryanair partnership with the German travel company could be announced as soon as Thursday, one of the people said, asking not to be named before a deal is final. The talks with TUI follow an agreement Ryanair reached in January with online travel firm Loveholidays, under the condition that no mark-ups were allowed on the Irish discounter’s flights, the person said.

A deal would give travelers another way to bypass online agents and arrange holidays on Ryanair flights. The low-cost carrier’s chief executive officer, Michael O’Leary, has branded sites such as Booking.com and Lastminute.com as “pirates,” and called on regulators in UK and the European Union to halt their practice of adding fees for services such as changes to a Ryanair itinerary.

The online aggregators act as middlemen arranging for flights, hotels, car rentals and other travel services. They have accused Ryanair, Europe’s largest discount airline, of abusing its market dominance by disrupting their services. In December, many of the sites unexpectedly dropped Ryanair flights from their listings.

The move caused a drop in demand at Ryanair, which has since started to reach separate deals with individual sites. In addition to Loveholidays, Ryanair has also sealed a partnership with Kiwi.com.

TUI, Europe’s biggest package-tour company, operates its own flights, as well as cruises and hotels. It has faced recent competition from EasyJet Plc, whose own package-tour business has been rapidly expanding.

An alliance with Ryanair would allows TUI to tap the Irish airline’s broad network for to offer more flights to its customers. It currently operates its own airline fleet, and allows customers to choose flights from other carriers, including EasyJet, Norwegian Air Shuttle ASA, Eurowings and Wizz Air Holdings Plc.

TUI Chief Executive Officer Sebastian Ebel said on Tuesday that the company wanted to close the “gaps” in its offering by adding more flights from discount carriers.

[adamb1978] 14/2/2024 10:19

Yep, sorry, wasnt trying to refer to the specifics in what you said. More just that generally, both in terms of positive and negatives about the strategic position of companies, its very very hard to have a true edge and really know what will drive the price up or down. Need to rely on the company's disclosures, and make an assumption about the truth!

[elsa7878] 14/2/2024 08:46

Hi Adam,

I'm not trying to talk it down just providing some reasons as to why OTB shares are static/ falling when all other airlines and holiday company's shares are rising....

Might be of help to some....

[adamb1978] 14/2/2024 08:34

Hi Elsa

Thanks for the post and all the best for wherever you deploy your capital afterwards.

I try to apply a large degree of strategic ignorance partly because having spent a large chunk of my career in two FTSE 100 companies, I've seen how badly wrong analysts and investors can get the real drivers for business performance and magnitude of various threats (and similarly also upsides). Part of this due to poor research, and partly actually that companies are organic beasts and adapt to circumstances.

As a result, I tend to focus on the numbers and things I can see rather than trying to be an industry expert in the range of things which I invest in, which would be impossible.

On the margin threat, so I agree that gross margins seem to have come down based on the recent trading statement, but if you look at their guidance for PBT that has increased at a similar rate or faster than transaction volume. So if gross margins have come down, it follows that they've protected that via opex control (ie increasing opex less than turnover growth). I think its something which they could have worded better in the TS.

See you around

Adam

[elsa7878] 14/2/2024 08:25

Reasons for caution.

1) Competition in the OTA space is fierce and while OTBs growth rates have been impressive, others eg Love Holidays are growing much faster and have a much higher planned growth rate (95%).
2) OTA's are seeing increased access resistance from airlines eg Ryanair. OTA's model is very sensitive to seat availability.
3) EasyJet holidays now making over £100m PAT profit and with it's much deeper pockets can easily outspend OTB. It also planning huge capacity increases of circa 35%.
4) OTB sacrificing margin for bookings. Is that sustainable (see 3 above). Consensus estimates for OTB came down throughout substantially in 2023 while they were going up for easyJet, Jet2 etc.
5) Airlines and tour operators that control inventory benefit from higher fare prices through higher operational gearing. OTA's package fares at cost so higher fares would normally mean lower bookings.

[adamb1978] 14/2/2024 08:03

Hi Darrin

On the multiple, when I look at:

- 10% top-line growth forecast for Sept-25 and Sept-26
- very good ROE/ROCE
- net cash and probably even net cash at their seasonal low point this year
- asset light business model so any further cash generation can go to shareholders

....even if it doesnt get back to the high-teens, 10x just looks wrong. Hence my valuation yesterday which I based on 15x, and getting to c.100% upside here over 2-3 years.

Risk/reward balance here looks hugely favourable in my view.

Adam

[aishah] 14/2/2024 07:41

TUI record results a good read across for OTB imo.
Now that TUI are moving their UK listing to Germany, maybe some money will flow here.

[darrin1471] 13/2/2024 21:56

OTB used to trade in the high teens when they were on a high growth multiple. Historically higher revenue was due to higher volumes of travelers rather than today where higher revenue comes from higher average prices.

"Group cash, excluding amounts held in trust, of GBP75.8m (30 September 2022: GBP64.5m)"
So group cash grew £11.3m in 12 months compared to a market cap of £241m with no dividend paid.

"The cash flow profile of the Group is seasonal with approximately 50% of customers travelling in the period June to August and therefore in a normal year the cash flows experience a trough prior to June and a peak following this. As a result the available credit facilities are only utilized for a short period, in FY23 being between January and June."
So when valuing OTB do you take the £76m cash they have at the end of September or the debt they owe at the end of May (up to £60m banking facility). Average cash or debt could be a fair figure but I don't see that figure. I would of thought OTB has a small cash balance when averaged out over the year.

[mrnumpty] 13/2/2024 20:12

Adam and Darrin . Thanks for the intelligent comments . However , don’t forget that OTB have 46p ( £ 76 m ) per share in net cash so ex-cash that’s about £ 1.00 a share which , accepting Adam’ statement of 19p EPS forecast for Sept 2026 , that gives a forward p/e of about 5 .

[adamb1978] 13/2/2024 19:24

OTB are performing very well at the moment based on their recent TS. Its easy to hypothesise about impact of one company on another but very very easy to get those wrong.

They're on a PE of 10x Sept-23 and have net cash even at the seasonal low point I believe now. They used to trade on high-teens.

Investing is about probability weighted bets rather than anything ever being a sure thing, and IMO that sort of multiple for OTB gives a great chance of decent gains via earnings growth combined with multiple appreciation. I think there's 100% upside potential in 2-3 years

19p EPS forecast for Sept-26. Put that on 15x and you get 285p vs 145p now (plus add in 3p-4p divis p.a. too)

[darrin1471] 13/2/2024 18:40

A counter argument would be that if TUI, Easyjet and JET2 are doing so well selling an end to end package using their own planes and hotels then that may leave less capacity and lower margins for 3rd party sellers like OTB.
OTB has not existed through a full business cycle but I think OTB may do well during a downturn when there is a lot of spare flight and hotel capacity.(ignoring Covid cycle)

[mrnumpty] 13/2/2024 17:36

“ Shares “ magazine reported today that TUI have just reported their best-ever 1st quarter revenue of € 4.3 bn , and € 6 m of EBITDA “ . The magazine quotes TUI as reporting “ higher demand at improved prices and rates “ . Surely , given that OTB don’t have all the costs of TUI , such as retail shops , the prospects for our company should be even better .

[johnrxx99] 02/2/2024 09:17

Oil down OTB up.

[adamb1978] 30/1/2024 08:13

Need to normalise for the seasonality when looking at the cash pile, so can't just take the seasonal peak in Sept.

That said, the cash low point this year I believe will be >0 so net cash throughout the year.

As such, I'm expecting them to reintroduce a divi this year, which should be another positive signal

[johnrxx99] 30/1/2024 02:41

I suspect yesterdays drop was because of oil price and middle east crisis factors.

[hatfullofsky] 29/1/2024 22:21

EV PE is just over 5 !!!! Lets not forget that huge cash pile

[paleje] 29/1/2024 16:26

On 24 Dec the Times Lucy Tobin posted a reco for OTB, her view was positive and nothing much has changed, Shore Capital fair value was 220p. Targets are higher. Truth is they'd already reassured the market in their trading update so the actual results had nothing to add and the share price stalled then started sliding and by Friday broke 160p which I guess would have triggered some stop losses then sells beget more sells. This is a truly rotten market. From the Times article:-

.......But while investors have clearly spotted the sunnier outlook, the shares have further to go. On The Beach is still trading 50 per cent lower than the £5-£6 level seen before the pandemic, and has a valuation of nine times forward earnings, down from a five-year average of 20 times. The firm has announced the return of the dividend next year following a pandemic-imposed pause, while it is cash generative and now debt-free with cash reserves above £75 million.

Investors’ worries about a heavy marketing spend to build the brand in the luxury travel market have also been allayed: marketing costs fell from an elevated 45 per cent to 38 per cent of core UK revenues.

There are decent expansion opportunities for On The Beach, which currently has only a 5 per cent share of Britain’s premium travel sector and a 2 per cent market share in long haul. Shore Capital said that the company is “walking on sunshine”. Katie Cousins, an analyst at the broker, is cautious about the very competitive travel industry, but still reckons a £2.20 share price would provide fair value, pointing out that the company is enjoying “strengthening tailwinds into 2024”, with record forward bookings and “robust” demand.

[adamb1978] 29/1/2024 16:03

No, but you can take the guided PBT and make some assumptions. All that matters really though is the bottom-line, which looks healthy

[sundance13] 29/1/2024 15:18

They haven't signalled lower EBITDA margins have they? Only that they are pushing for volume in certain areas via promotions. Might see weaker gross margin but volume gains and economies might offset those at EBITDA level.

[adamb1978] 29/1/2024 12:24

I dont think its 'narrow' margins though Highlands, though they've suggested that they might be 'narrower' than they otherwise would have been.

In Fy23 EBITDA margins were 16% up from 13.5% the year before, but way way behind pre covid margins. Therefore it depends on whether the baseline for the 'narrower' is against the 13.5% to 16% trend or against 16% or....

Either way, £30m PBT which they've confirmed comfort with suggests around 14.5p EPS so a PE of 10x....

[highlands] 29/1/2024 12:15

For Mr. Market, it's all about profits, so the narrow margins will be a big concern, especially when compared to the competitors.

[kibes] 29/1/2024 12:14

The fall today feels a bit overdone and contrived to me. They are still expecting PBT in 2024 of £30 million, so on a p/e ratio of 10 (very undemanding) that would give a market capitalisation of £300 million or 180p/share for the share price. Of course people who bought in around 100p are probably ready to book some profit above 140p but I don't see any reason to do that.

[adamb1978] 29/1/2024 11:37

Agree JM65, but I'm not sure that they could have said more(?). Too early to say they'd beat expectations...so just confirming on course is fine. The margin comment I also agree with but equally that's an input to the £30m so kind of already included...

[jm65] 29/1/2024 11:14

Thought the update was a bit underwhelming too.Thought they said nothing new but with a hint of sacrificing margins.

[adamb1978] 29/1/2024 10:56

There's a relatively clear upwards channel on the chart starting in Q3 which its reached on the upside 3 times and them come off, and on the downside looks like 146p would be in line with