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If you follow me on Twitter and I have probably mentioned this many times in my Website scribblings, I am very keen on Internet/Mobile growth plays because even though these kinds of technologies have been with us for many years how, I still feel like we are merely in the Foothills of what is quite probably a future of Mount Everest proportions.
To play these themes, I have Stocks like BooHoo BOO, Iomart IOM, Entertainment One ETO (ok, that connection is more tenuous !!), Go Compare GOCO, Moss Brothers MOSB and Supergroup SGP (which both have growing Internet businesses), Telit TCM, Esure ESUR, Paysafe PAYS, Paypal PYPL, igIndex IGG. In addition, there are many other Stocks like Asos ASC, Gear4Music G4M, Hostelworld HSW, Rightmove RMV, etc. which have done really well and many of these Stocks are now on silly and for me prohibitive valuations.
This is where OTB comes in - being a specialist Travel Company that is purely online based, this fits right into the model of Stocks I am after to play this Internet theme and although normally I would not be too keen on a Travel business, OTB looks to have been left behind while other similar Stocks have shot up in Valuation.
Needless to say because of my interest in this ‘Internet Plays’ theme, I have been on alert to find something along the lines of OTB and in order to track one down I have been reading the Results and Trading Updates from various businesses and it was when reading OTB’s recent Results that it really hit me how much potential this has. Another thing that has supported my interest is that several mates who I rate very highly are invested in this Stock and that always makes me take notice - in particular @Reb40, @dosh100 and @imranyawan.
The Biggest Risk that is potentially quite nasty is around ongoing Litigation with Ryanair RYA to do with the Airline trying to stop Online Travel Agents (like OTB) from booking and selling flights with them. OTB says the Legal Process is at an early stage but if they lose it could have “a material impact on the Group’s business”. Clearly if OTB loses it is bad news but any hit to them I suspect would be short term and it is not as if RYA is the only Airline around. In the IPO Prospectus (there is a link further down the Blog) they say due to the EU aspects of the Legal Issues, this might drag on to 2021/22 !!
This bit I copied from the IPO Prospectus summarises their Platform very well:
“The Group’s technology platform enables customers to package
dynamically the constituent components of their holiday (including flights,
hotels and transfers) to customise holidays from millions of flight and
hotel combinations. The Group’s search facility connects customers to
suppliers of travel products. Each travel product is booked separately. The
Group’s dynamic packaging is different to the traditional package holidays offered by many tour operators, where packages of flights, hotels and other products are fixed by operators at the outset.
The Group is completely independent from airlines and hotels, so that it
can offer customers a full market range of flight and hotel products
bookable through online channels (including by desktop, mobiles, tablets
and apps) and over the phone.”
You can see OTB’s Website here:
I thought this bit on ‘Strategy’ was particularly worth reading with stuff about their improvements to the Customer experience via different Devices, increasing Revenue per User and using Offline Advertising to boost traffic:
This bit is interesting on the Directors - note the CEO Simon Cooper was the Founder and also that the Chairman is with Hostelworld HSW which has been a belter of a Stock and very similar model (gutted I missed it - especially because I flagged it on Tweets a while back and it is in my ‘Little Black Book‘ list !!).
Here is a link to the Customer Facing Website:
Here is a link to the original Listing Prospectus in PDF form - some excellent information in there:
The Original IPO Prospectus (there is a link earlier in this Blog) has a very detailed List of Risks that are well worth looking through.
Main Reasons I like OTB
I keep promising to include some SharePad screens in my Blogs so Readers can get to see what it looks like - anyway, here is a Screenshot giving the Major Holders - this is from Saturday 3rd of June but should still be up to date. Note it is from the Browser on my PC - it looks the same on my 10“ Tablet but obviously smaller !!:
Not much to see here apart from Simon Cooper the CEO and Founder having a chunky stake and I am very pleased to see Hargreave Hale are in here - they are a shrewd bunch.
Here is a Screenshot from SharePad with the upcoming Diary events for OTB:
Revenue and Profit Growth Chart
I really like the ‘Carousel’ feature in SharePad and the attached Screenshot is from the set of Charts that are in the Carousel and this is what I love seeing - a steady rise in Revenues and Profits over time. I am talking about the Bar Chart in the bottom right !! Again this is from Saturday 3rd June but it is still up to date enough.
On 11th May 2017 OTB put out their Interim Results. These were the ones I read whilst lying in bed as usual (my horizontal office !!) and where it started to hit me how good OTB looked. You can read these Results here:
The Growth Rates strike me as impressive:
“• Group revenue increased 7.3% to £38.1m (H1 2016: £35.5m) with a later booking pattern for peak departures
• Group profit before tax up 33.8% to £9.9m (H1 2016: £7.4m)
• Adjusted group profit before tax(1) up 28.4% to £12.2m (H1 2016: £9.5m)
• Basic and diluted earnings per share increased 22.0% to 6.1p (H1 2016: 5.0p)
• Adjusted earnings per share up 27.1% to 7.5p (H1 2016: 5.9p)”
And this bit about Debt falling shows they are generating Cash:
“• Net debt at half year reduced to £2.3m (H1 2016: £6.6m debt)”
And they have declared a first ever Interim Dividend of 0.9p per share which is obviously a wondrous thing to behold. Note, they also intend to pursue a “progressive Dividend Policy” which is something else to like a lot as it means they intend to keep the Divvy rising every year.
The growth in Sweden is strong with Revenues up 20% but it is still tiny and the Norway bit has only just started.
Note OTB have no Stock requirements which obviously lowers Working Capital requirements and also note how Marketing/Advertising Costs lower as a % of Revenue as the Group grows - this is a very positive dynamic.
Recent Acquisition of Sunshine.co.uk
OTB bought Online Travel Agent Sunshine.co.uk for £12m as per the attached RNS:
This seems an obvious fit and the Price paid looks reasonable on the information we have.
The ScreenShot below is from the ShareScope ‘Details’ Screen and you need to be looking in the Top Right Hand Corner cos that is where the juicy stuff is !!
You should be able to see under ‘Sep 2018 Forecast’ that the ‘Norm EPS (p)’ Analyst Consensus is 22.59p. On my Buy Price of 400p for the Spreadbet (the Shares I bought were 398p) that is a Forward P/E Ratio of 17.7 (400 divided by 22.59) - for a Hot Internet Play I think that is very reasonable.
Of course the other really important Metric on this kind of Stock is the PEG Ratio (Price Earnings / Growth) which is a wickedly cool thing because it relates the P/E Ratio to the speed at which a Company is growing - it is reasonable to pay a higher P/E for a fast growing Company. The generally accepted principle is that a PEG below 1.0 is cheap.
For OTB the Profit is growing at a rate over 25% (I have worked this out myself from the Numbers on the ShareScope screen, including the Forecasts), so on a Forward P/E of 17.7 we get a PEG of 0.7 (17.7 divided by 25) which is very attractive. Note how the EPS is forecast to grow from 17.58p to 22.59p to 28.80p (from Sep 2017 to Sep 2019) so you can see how fast the growth is expected to be.
Note in the middle of the ScreenShot you should be able to see a figure for ‘PEG’ of 0.55 - this seems super cheap but it must be appreciated that this will be based on Historic figures - I always work things out myself from the raw numbers and for me the Future is more important than the Past (obviously with some Margin for Error cos Forecasts can always be missed).
In terms of Dividend Yield I should pick up roughly 1% next Year which is not a lot but OTB is not really a Divvy Stock - I have bought this for Capital Growth (this should be visible in the Top Right Hand Corner of the ScreenShot on the Line ‘Div yield (ye)’.)
I really like the Potential Upside here - as a High Growth Internet Stock there could be a lot more to come. First off if we just assume that the P/E Ratio stays around the 17.7 I mentioned above, then it is not hard to see Future Earnings Per Share of perhaps 30p in a few years (that is probably quite conservative as the Forecast for 2019 is 28.80p anyway). If we do the maths, that throws up a Target Price of 531p (17.7 times 30p).
However, even though that is about 32% up from my Buy Price of 400p, I think it understates what could be seen here. I don’t think it would be crazy to put a P/E of 20 on this Stock as a better reflection of its growth nature - this would give a Target of 600p if we base it on 30p of EPS (20 times 30p). That is 50% upside for me.
OK, time to get a bit silly. In a few years it is not impossible to imagine 35p of EPS and such a Growth Stock could be on a P/E of 25 (even then it is not totally daft - lots of Internet Plays are on P/Es over 30 and more) and if we run these numbers you get a Target of 875p in a few years (25 times 35p). You get the idea.
The key thing to understand is that Share Price growth can come in 2 ways - from the EPS rising each year and from P/E Multiple Re-Rating or Expansion - if we get both, it is Wheelie’s beloved ‘Double Whammy’.
I was sniffing around Share Pad (I’m mixing and matching SharePad and ShareScope today !!) and seeing what other features it has and I came across the following - I took this ScreenShot on Saturday 3rd June 2017 so the Share Price might be different at the time you read this Blog - I have no idea how this Discounted Cash Flow thing is calculated but SharePad seems to have several Valuation Tools under the ‘Investor Tools’ button:
The Chart below (from the magical ShareScope software that I use), has the Daily Candles for OTB going back to when it first Listed in September 2015. You should be able to see that it lurched up and down for much of the next year and then it got into a nice Uptrend Channel which is shown by my almost Parallel Black Lines. I have marked the Upper Channel Line with my Black Arrow and note how where the Yellow Circle is the Price Action recently has all been above the Channel - I am hoping that it finds Support on this Upper Black Line now but of course it might drop back into the Channel. With the current bullishness of the Markets (this week excepted !!), it seems very possible it can carry on upwards - however, it doesn’t overly bother me because I am a Fundamentals-Based Long Term Investor and I suspect OTB will be a lot higher in a couple of years and I am very patient……..
The next chart focuses on this Uptrend Channel - where my Blue Arrow is shows that we need to find Support and bounce now. Note this is around the 400p Level which is a key psychological barrier to get over - if it can crack this properly, it would be a very good sign.
The Chart below has the Daily Price Candles with the Blue Wavy Bollinger Bands above and below. Note the Bottom Bollie Band is now down around 370p where my Black Arrow is rudely pointing - it is very possible it could fall down to this level before turning up again.
Note, I expect a big Win for Theresa May tomorrow and part of the reason I bought OTB today is so I am ready for a Relief Rally if the Markets are relieved that Comrade Corbyn and his anti-Economic Growth policies are going to be in No.10.
OK, that’s it, I hope you find this useful.
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