Online travel agent, On the Beach (LSE:OTB), published its interim results this morning. Since embarking on its stock market journey last September, the company’s share price has climbed from 205p to today’s price of 284p. The question is whether such performance can be sustained in the medium-to-long term.
Basking in the sun
Figures released today suggest On the Beach is doing all the right things. Revenue grew 21.6% to £35.5m, operating profit was up 54.2% to £7.4m and adjusted earnings per share increased by 51.3% to 5.9p. Can this growth continue? Quite possibly. The company’s disruptive business model is different from those of its bigger rivals. In addition to its razor-sharp focus on one market (short-haul beach holidays), the company also offers dynamic packaging. Here, customers are able to choose their preferred combination of flights and hotels, meaning that the days of needing to stay for a fixed period of 7 or 14 nights are over. Its lack of high-street presence also allows On the Beach to devote a substantial amount of its cash to marketing. It’s recently launched in Sweden and has the potential to enter other European markets in the future.
Commenting on today’s figures, On the Beach’s CEO, Simon Cooper reflected that the company continues to make ‘strong progress’ in delivering its strategic objectives. So long as there are no “negative future market events” in the near future, he anticipates consumer confidence will grow in the second half of the financial year and that full-year expectations will be met. Investors in the company, which holds a 17% share of the online short-haul beach holiday market, will be encouraged by this optimistic outlook and very positive results.
In the shade?
On the Beach has sought to steal away customers from more established operators such as Thomas Cook (LSE:TCG) and TUI (LSE:TUI). The former, also releasing interim figures today, reported a slight dip in group revenue from £2,742m to £2,672m. Underlying losses improved slightly to £163m from £173m but nebt debt rose £125m to £825m. What a contrast with the figures released by On the Beach. Market reaction has been incredibly negative so far. At the time of writing, the shares are down almost 19%.
In its recent half-year financial report, TUI stated that turnover had grown by a rather measly 2.7%. The forecast rolling P/E for the company now stands at a quite reasonable 11.9, according to Stockopedia. The same ratio for On the Beach is 19.2. Clearly, those interested in the more nimble online retailer will need to pay more to acquire its shares. That said, sometimes it’s worth paying more for quality companies with better prospects.
External threats
One issue that has the potential to disrupt all travel operators is the growing level of terrorist activity in the world. Will this be enough to convince holiday-makers to stay at home in the long term? I think this is unlikely. Families and couples will always be drawn to the sun, sand and chance to unwind. However, if events dictate otherwise and there is a big shift in demand, the flexible and asset-light On the Beach may find it easier to adapt. Indeed, the fact that it has managed to continue to expand during a period of increased threat suggests that this relatively small company could prove more resilient than its peers.
