On the Beach looks to continue recovery with strong second half

On the Beach, the Manchester-based holidays group, said it is well positioned for its heavier weighted second half period, after announcing interim results for the six months to March 31, 2023.

In his last half year announcement before stepping down as chief executive on June 30, founder Simon Cooper said he remains excited about both the near term and longer term opportunities for On the Beach.

He will be replaced in the CEO role by current group chief financial office, Shaun Morton, as announced in December last year.

Group revenue jumped by 38% to £73.2m, and the first half pre-tax loss fell from £7m last year to £6m. On the Beach historically enjoys a stronger second half performance. EBITDA rose from £3.7m to £4.1m.

Revenue growth was supported by investment in the brand and proposition with a continuation of free holiday perks for customers and ‘the most wonderful time of the year’ advertising campaign.

The group said its premium segment continues to perform strongly with Total Transaction Vallue (TTV) growth in 5-star holidays of 17% year on year, and more than double pre pandemic levels.

It continues to focus on growing this segment and believes there is a significant incremental revenue opportunity to be gained in the medium term by attracting these customers to the brand.

Progress in growing its long haul proposition has continued with new scheduled long haul airlines added in 2023, and further growth in existing and new destinations planned in the second half of the year.

Trading momentum has continued since April 1, 2023, and comparator periods will start to soften as the group annualises widespread airline and airport disruption experienced during summer 2022.

On the Beach believes there is significant unsold bed and seat capacity in the market and it continues to see strength in late and long lead time bookings.

Simon Cooper said: “I am pleased with the group’s strong performance in the first half, delivering a record group booked TTV and group revenue performance, up 28% and 38%, respectively, driven by increases in both volume of bookings and the average value of holidays sold.

“This was supported by our largest ever offline marketing campaign, ‘The most wonderful time of the year’, which included sponsorship of ITV’s Masked Singer and the Magic Radio breakfast show. This marketing effort also delivered the group’s highest ever top 3 brand consideration score, despite a more aggressive competitive environment.”

He added: “The travel sector continues to recover post-pandemic and the group has experienced significant increases in demand for its holiday product, particularly the Premium 5* offer.

“This segment represents a substantial growth area and we continue to see a significant incremental revenue opportunity to be gained in the medium term by attracting these customers to the brand. Our long haul offer also continues to grow and we have added new airlines and increased the number of destinations we can offer to our customers.

“We continued to invest in our technology capabilities including a migration to the cloud in H1 to allow greater speed of developments and increased security. These investments will enable the group to drive continued growth in both the core business and the exciting expansion opportunities.”

He said: “In what will be my last half-year results as CEO before handing over the reins to Shaun on 30 June, I am pleased with the group’s performance in the first half and I am confident that the right building blocks are in place for Shaun and the team to continue to deliver growth across the business and I remain excited about both the near term and longer term opportunities for On the Beach.”

Investment bank Panmure Gordon reduce its estimates and share target price following today’s results. Analyst Lena Thakkar said: “We have reduced our estimates to reflect these results and our expectation of weaker margins. We now forecast EBITDA of £32.2m for FY23e and £40.4m for FY24e.

“We continue to value On the Beach on a 9x P/E multiple, which we apply to our new forecasts, to derive a 126p target price (from 160p). Although the stock has derated, given the negative earnings momentum and structural challenges, we maintain a Hold rating.”