Shares in online package holiday provider On The Beach (OTB) gained over 4% to 276.5p despite the company saying over 90% of its bookings on average were cancelled this summer and its boss warning the impact of Covid-19 has been ‘every bit as extreme’ as could have been expected.
In a trading update ahead of its full year results, On The Beach also pointed to more pain ahead as international travel bans thanks to more lockdowns affect booking volumes.
But the market seems to have reacted positively after the firm said that due to ‘strong cost control’ adjusted pre-tax profit (excluding exceptional costs and brand amortisation) was at breakeven levels, ahead of what analysts had predicted.
CANCELLATIONS OVER 90%
On the face it there didn’t seem to be much for investors to be enthused about in On The Beach’s update.
The company said that as a result of travel restrictions in place and low levels of consumer confidence, it experienced a varied trading performance through its third and fourth quarters with booking volumes down 75% and 53% respectively year-on-year.
Cancellation rates have been in excess of 90% across the summer, well above the firm’s assumption at the half year, and it expects cancellation rates to continue at the same level over the winter. This has led to further exceptional costs for On The Beach of £10 million in the second half, which it now expects to be £45 million for the full year.
The company’s chief executive Simon Cooper said it is ‘clear now that the full impact of Covid-19 will be every bit as extreme as any of us could have mapped out at the beginning of the year.’
BROKER VIEW
But Cooper added that thanks to support from its shareholders, as well as the fact it ringfenced prepayments from customers so it wouldn’t be as badly as affected other travel firms in issuing refunds, On The Beach is debt-free and ‘well-positioned to sustain further disruption’ in the travel industry and grow market share both in the UK and internationally.
This optimism was shared by Numis analyst Richard Stuber, who pointed to the company’s asset-light business model and its £119 million in liquidity headroom, as well as its cost control with monthly cash burn at £2 million.
Stuber said, ‘Whilst we see a challenging few months ahead, we remain adamant that the OTB asset-light and flexible model is the best model to cope with these pressures, and? recovering demand for the industry is ‘when, not if’.’
