Jarden gives Helloworld Travel an Overweight rating with a big target price. Picture Getty
Experts
Jarden Research has slapped an Overweight rating on Helloworld Travel (ASX:HLO), with a target price of $3.70 (versus current price of $2.49).
Helloworld is a $400m-market capped travel company that offers all sorts of travel goodies, from local getaways to trips around the globe.
The company was launched in 2013 after the consolidation of legacy brands Harvey World Travel, Travelscene, Jetset and Travelworld. A merger with The AOT Group followed in 2016, and the business name was changed to Helloworld Travel in 2017.
Helloworld now has its fingers in three main pies: Retail, Wholesale, and Inbound travel, with a workforce of over 600 spread across Australia, New Zealand, Fiji, and even Europe.
The company is also into cruising, with SevenOceans Cruising and Cruise Co its go-to brands for all things cruise-related.
The latest Q3 report on HLO’s performance confirmed a slowing growth trend despite the Express Travel Group (ETG) acquisition.
While the results matched expectations, the figures suggested a decline in like-for-like EBITDA when excluding the ETG acquisition.
The Q3 Total Transaction Value (TTV) saw a significant year-on-year increase of 43%,but revenue margin dropped by around 140 basis points, and EBITDA margin fell by 400 basis points.
The company has attributed the declining TTV to various factors, including improved airline capacity and airfare pricing in the ANZ region.
As for margins, the decline was mainly due to the impact of ETG acquisition and changes in product mix.
However, there was some positive news regarding Logistix (a division of Helloworld handling concerts logistics etc), which recovered after a soft first half of the year.
In its update, Helloworld also reiterated its EBITDA guidance for FY24, expecting it to range between $64 million and $72 million, with Jarden’s forecast aligning closely to the midpoint.
Despite the soft update, Jarden says its outlook on Helloworld remains optimistic, and it retains an Overweight rating on HLO.
“HLO is a capital-light business, and we expect to see its operating free cash flow accelerate through FY25 and beyond via the ETG acquisition, cost fractionalisation, and override realisation,” says Jarden.
“In our view, the above, coupled with HLO’s strong balance sheet position and proven M&A track record, is not reflected in the current price.”
And despite signs of softening demand in the travel sector, Jarden believes HLO’s end-market exposure (baby boomers) and improving ROIC (return on invested capital) all warrant a higher price multiple.
“We note HLO’s share price continues to lag those of its peer set, with potential for the gap to close if management can build confidence on improving underlying EBITDA and margin expansion…” says Jarden.
The broker also noted management’s historical conservatism in guidance.
“As leisure remains resilient and we moves towards pre-COVID levels in FY25, it could suggest upside if HLO has a better 4Q, which is seasonally stronger, albeit there was little evidence of this in the 3Q update or commentary,” said Jarden.
The views, information, or opinions expressed in the interview in this article are solely those of the broker and do not represent the views of Stockhead.
Stockhead has not provided, endorsed or otherwise assumed responsibility for any financial product advice contained in this article.
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