5th Dec 2023 13:03
(Alliance News) - On The Beach Group PLC on Tuesday reported improved annual earnings in a sign that its shift to more premium holiday packages is bearing fruit.
For the 12 months ended September 30, the company reported pretax profit of GBP12.9 million, up from GBP2.2 million a year prior. Group operating profit was GBP10.3 million, up from GBP2.7 million.
Revenue rose 19% to GBP170.2 million from GBP143.4 million the previous year.
The board did not recommend a final dividend for financial 2023. However, it does intend to reintroduce a dividend for the next financial year, based on a return to "normal market conditions" and a "sustainable cash generative business model".
"Holiday seller On The Beach is making a comeback after a difficult few years," AJ Bell analyst Russ Mould commented.
"A strategic push to become bigger in the premium and long-haul beach holiday markets initially spooked investors who feared it would have to stomach considerable marketing costs to get its brand front of mind for travellers. However, the move now appears to be paying off. Up until six months ago, chasing the premium end of the market seemed like a no-brainer on the assumption that wealthy people wouldn't change their spending habits despite higher inflation."
Mould continued: "But in recent months we've seen cracks in the luxury goods market which suggest wealthier clientele aren't completely immune to cost-of-living pressures. Will this trickle down to the premium holiday segment? Judging by On The Beach's outlook statement, it hasn't happened."
On The Beach celebrated strong demand for holidays across its core addressable market and strategic expansion areas, with growth in passenger numbers. It stressed that its performance during the summer was "especially pleasing", with passenger numbers for those holidays departing between May and October up 13% on the prior year.
The group also said that it has continued to focus on improving the operational efficiency of its cost base, with marketing costs reducing as a percentage of revenue versus the prior year, and admin expenses as a percentage of revenue in line with the prior year.
Broker Liberum largely reserved its judgement on On The Beach's shift to premium for now.
"It remains unclear how long it will take for the investment to pivot to its premium strategy will pay back," Liberum analyst Nishant Dahad said, noting On The Beach shares are trading at a discount to its pre-Covid equity value to earnings before interest, tax, depreciation, and amortisation multiples.
"Given the more challenging macro-environment, a discount to history is justified in the absence of more material earnings upgrade momentum and general lack of visibility for this highly seasonal business."
Shares in the company rose 17% to 137.00 pence each in London on Tuesday afternoon. The stock has risen 5.9% on-year but sits some 70% below what it traded at in early-January 2020, before Covid worries gripped the market.
By Eric Cunha, Alliance News news editor
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