On the Beach Group — Feeling festive

Research: Consumer

On the Beach Group — Feeling festive

The increase of 22% in booked total transaction value (TTV) both in H124 and for this summer, driven by successful expansion into premium and long haul and backed by its pioneering perks, confirm On the Beach’s (OTB’s) progress in addressing a market it estimates to be 5x more valuable than its core Value (3*) business (now just 25% of bookings) as well as more dynamic. Another ‘very big deal’ for OTB is its new ‘transformational’ partnership with Ryanair, its most significant low-cost carrier, ensuring free and fair access to seat supply and marking a more positive relationship, given outstanding litigation on historical refunds. With improved operational leverage yielding a near doubling of adjusted EBITDA in its seasonally quieter H124, OTB expects to meet FY24 market forecasts thanks to similar H2 dynamics, bolstered by B2B restructuring.

Richard Finch

Written by

Richard Finch

Analyst, Consumer

Consumer

On the Beach

Feeling festive

Travel and leisure

QuickView

24 May 2024

Price

138p

Market cap

£231m

Share price graph

Share details

Code

OTB

Listing

LSE

Shares in issue

167.0m

Business description

On the Beach is a leading UK online retailer of beach holidays with a short haul market share of over 20% and over 1.8 million customers in 2023.

Bull

Strongly placed in niche between tour operators and generalist OTAs with most popular holiday type and considerable scope in premium and long haul.

High brand awareness (noted for its pioneering customer perks) and well-invested proprietary technology.

Low cost, asset light, cash generative model.

Bear

Economic uncertainty but summer family beach holiday increasingly seen as sacrosanct.

Anti-competitive behaviour of low-cost airlines, mitigated by new partnership with Ryanair.

Increasing B2B competition, addressed by planned reorganisation.

Analysts

Richard Finch

+44 (0)20 3077 5700

Russell Pointon

+44 (0)20 3077 5700

The increase of 22% in booked total transaction value (TTV) both in H124 and for this summer, driven by successful expansion into premium and long haul and backed by its pioneering perks, confirm On the Beach’s (OTB’s) progress in addressing a market it estimates to be 5x more valuable than its core Value (3*) business (now just 25% of bookings) as well as more dynamic. Another ‘very big deal’ for OTB is its new ‘transformational’ partnership with Ryanair, its most significant low-cost carrier, ensuring free and fair access to seat supply and marking a more positive relationship, given outstanding litigation on historical refunds. With improved operational leverage yielding a near doubling of adjusted EBITDA in its seasonally quieter H124, OTB expects to meet FY24 market forecasts thanks to similar H2 dynamics, bolstered by B2B restructuring.

‘Huge’ incremental opportunity

Notwithstanding the material improvement in Value volumes and average booking value (ABV) in FY23 (TTV up by a third), which made a tough comparison for H124 (+1%), and the expected benefits to Value of the new Ryanair agreement and continued enhancement of perks, the development of premium and long haul markets remains key to OTB’s growth. The scope for lucrative marginal revenue is evident in Premium (termed as 5*), whose ABV is estimated by management to be c 2.5x that of Value in a segment of similar volume. With already a 5% market share and accounting for over a third of H124 TTV with a 41% increase, Premium has clearly achieved brand credibility away from Value as well as providing greater resilience and visibility through earlier booking. Long Haul (to date notably Dubai, Mexico and the Dominican Republic) is seen to offer a revenue opportunity of similar size to Premium, while as yet just 9% of H124 TTV.

Intended loss elimination

In the face of increasing competition the proposed restructuring of B2B by way of a single brand (Classic Collection) and agency operating model is expected to return the channel to profitability (EBITDA loss £1.6m in H124 and £0.9m in FY23) thanks to economies of scale. While management remains committed to its tour operator business, CCH will be shown for FY24 as discontinued. This should also simplify modelling as CCH as a principal reported revenue gross and on a travelled basis.

Valuation: Clear potential

In the absence of a direct UK peer for valuation purposes OTB looks attractive on PEG of just 0.4 FY24e, based on 25% consensus earnings growth and given the trading momentum, restructuring benefits and long-term growth opportunities.

Consensus estimates

Year
end

Revenue
(£m)

EBITDA*
(£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

PER*
(x)

09/22

143.4

21.9

14.2

6.4

0.0

21.6

09/23

170.2

31.2**

23.6

11.6

0.0

11.9

09/24e

197.0

40.4

31.0

14.5

3.2

9.5

09/25e

213.0

46.9

36.3

16.9

3.7

8.2

Source: Company-compiled and LSEG. Note. *Excluding exceptionals. **£32.2m pro forma continuing operations following planned B2B changes (CCH to be classified as discontinued).

EDISON QUICKVIEWS ARE NORMALLY ONE-OFF PUBLICATIONS WITH NO COMMITMENT TO WRITING ANY FOLLOW UP. QUICKVIEW NOTES USE CONSENSUS EARNINGS ESTIMATES.

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General disclaimer and copyright

This report has been prepared and issued by Edison. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. Where Edison has used consensus estimates within this publication, we do not guarantee their accuracy or completeness.

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No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

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Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

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The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

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This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

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Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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United Kingdom

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