On The Beach – An undervalued getaway winner?

3 mins. to read
On The Beach – An undervalued getaway winner?

On The Beach has a vision to be Europe’s leading online retailer of beach holidays and its ‘disruptive technology’ is going to give their competitors a run for their money, writes Mark Watson-Mitchell.

Cast aside the worries and the woes about Brexit and get yourself away for a sunny holiday – you know that you deserve it! The lure of booking a summer break must be so tempting currently and although times are feeling uncertain it does appear that clients of On The Beach (LON:OTB) have been doing just that – dreaming of sunshine and cloudless skies no doubt.

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At the online travel operator’s AGM last month, boss Simon Cooper told shareholders that the first four months of the 2018/19 trading year to end September had performed very well, with revenue growth up over 20%. The first half closes at the end of this week and the signs are that On The Beach is flying away – we shall get proof of this on 14th May when the company announces its interims.

Currently the company has some 20% of the UK online short-haul holiday market, behind its two larger competitors, Thomas Cook and TUI. Each year OTB sends some 1.5m clients off on their ‘perfect beach holiday’, and from what I can see that number is sure to grow significantly over the next five years.

Despite having been started from a terraced house in Macclesfield way back in 2004, On The Beach is still at the early stages of its corporate career. Its market potential is massive and Simon Cooper, who started the business, has built up a very professional team around him to enable him to take the company forward at a pace.

The company’s vision is to be Europe’s leading online retailer of beach holidays and its ‘disruptive technology’ is going to give their competitors a run for their money. The OTB platform gives the company’s customers the ability to actually ‘package’ their own holiday components, like flights, hotels and transfers, by being able to select from millions of hotel and flight combinations – as opposed to ‘this is the package – take it or leave it’ holidays on offer from their rivals.

Because it has no ties to airlines, hotels etc it is totally independent in its offer and all this is available through its various online channels, such as tablets, mobiles, desktops and apps, as well as through direct phone links. The company is convinced that the exploitation of its multi-device capabilities will create further expansion opportunities, whilst increasing revenue per booking and thereby enhancing profitability.

From inception 15 years ago using a call centre and Teletext Holidays as its platform, Cooper has expanded his company very well indeed. Its first website was launched shortly after the start and grew from thereon. In 2007 the company was given a financial boost when Livingbridge acquired a majority stake, valuing OTB it at £36m. Then in 2013 Inflexion Equity Partners took Livingbridge out on a £73m valuation. OTB went public in September 2015 when it was valued at some £240m, with existing shareholders raising £84m and the company some £6.4m of new funds – that saw Inflexion reduce their majority stake down to just 37% and also taking Cooper’s holding down by a few percentage points to nearly 11% of the company.

In the same year as it went public, OTB started to internationalise its model by launching into the Swedish market, then in 2016 into Norway, followed by Denmark last year. It now has its targets set upon rolling out its offer to the £50bn European market, with Belgium, France, Germany, the Netherlands and Spain within its sights.

Over the last four years, since it went public at 184p a share, the group’s revenues have increased from £63.12m in 2015 to £104.10m last year. In that same period the pre-tax loss of £2.46m in 2015 has swung around to a £26.10m pre-tax profit for the year to end September 2018, whilst 14.90p in earnings per share have grown to 21.20p for last year.

Following through Simon Cooper’s bullish comments at the AGM, it does seem as though current year brokers’ estimates of revenue of £165m and pre-tax profits of nearly £39m could be close to the mark, with earnings coming in at some 24.21p per share. Next year £186m of revenue could generate £46m of pre-tax profits and 29p per share of earnings.

At the current 448p the shares of On The Beach are headed for sunny skies and I wouldn’t be surprised if the 630p high in May last year is beaten within the next year or so. This short-haul specialist is certainly one for the profitable long-haul.

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