Hostelworld (HSW LN), cheap and cheerful
Summer is here and most of us think about holiday. I will never forget the great time I had in hostels, those days balance between cost and convenience was tilted towards cost. One interesting stock that taps into the growing demand for travel among millennials is Hostelworld. IPOed recently, floated on a 5 start valuation but ended up 53% lower as market was expecting growth but bookings entered a soft-patch in Europe, after the recent events in Paris/Belgium. I think there could be some hidden value at current price.
Business: Hostel booking service, market leader in hostels, followed by booking.com. Technology is developed in-house (both app and web-platform). Their business model is quite straightforward, customer searches and books accommodation through the app, Hostelworld collects a deposit, customer pays the balance at the hostel upon arrival. Employes 256 people across Dublin, London, Shanghai and Syndey.
22% owned by Woodford’s Patient Capital.
HostelWorld’s recent campaign: In Da Hostel with 50 cent, costs almost 50 cents of every 1 euro collected in Revenue.
FY15 Results: bookings grew 1% to 7.1m, Net Revenue Eur 83.5m +5%yoy,
EBITDA 23.6m. Profit after tax: Eur 21m v 25.6m yoy impacted by higher marketing ‘investment’. Marketing expense is the single biggest expense item, came at Eur37.4m (+29%) or 44.7% of revenue, which means for Euro 1 HSW collects, 45c go to marketing
G&A came at 64m as marketing increased Eur +8.5m
Net Cash of 13.6m
Capitalised R&D: 4.3m v 1.4m yoy staff costs (not so good)
Divi: recommended 2.75c, policy payout 70-80% of profit after tax
Integrated Hostel Bookers and Hostel World brands, with Primary focus on Hostelworld.
Hostelwold contributes 3/4 of bookings and reported 17% growth
Mobile: 41% of bookings were though the mobile app, 59% via desktop
Geography: UK is only 12%, rest of Europe 34%, US 24%
Target Age: 78% between 18 – 30 yrs olds
Generates Eur 22.6 per booking on average
Market Cap GBP 148m, EV/EBITDA x7.1, Divi 1.4%, P/E 8.7
Assuming net income falls 8%, in line with consensus and comes at Eur 19.3m
then HSW trades at forward P/E x9 and a potential dividend yield of at least 7%
Most recent guidance: AGM statement 26 May:
– trading in Q2 has been below management’s expectations, due to softer demand in EU
– average booking value has been lower
– marketing expenditure will be below the previous guidance of 45% – 50% of revenue
-It’s all about the Summer: ‘the year’s outturn will be depended on the recovery in key European destinations over the important summer travel season’
App Annie statistics show downloads across key countries remain stable, the 8% revenue decline projected by consensus seems fully priced in.
Goodwill and Intangibles reported on Dec 15 with a carrying value of Eur 159m, representing 88% of total assets. Most of these non-tangible assets relate to domain names (Eur 136.8m). Management has fully written down the goodwill from hostelbookers acquisitions. Total impairments came at Eur 50.6m (or five year’s worth of amortization)
you can see but can’t touch..
Insiders started buying