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Regular Readers of the twaddle I put out may have spotted that I am very attracted to Online Businesses both in the direct retailing of stuff but also in terms of Booking things and all that. I do not hold Hostelworld HSW but I recently bought On The Beach OTB Shares who specialise in Beach Holidays and although Travel/Tourism is not a Sector I usually like, there is something about HSW that is really giving me its Siren Call - I suspect the chunky Dividend Yield backed by Cash is also winking hard at me and another factor which struck me is just how dominant HSW seem to be in enabling Hostels to find Customers and get bookings from them.
Overview and History
HSW claims to be the largest online hostel-booking platform - so clearly it has some dominance online and that has to be a competitive advantage. They operate via Websites HostelWorld.com (92% of Group Bookings), Hostelbookers.com, Hostels.com and others.
I note they mainly do Hostels but also offer Hotels and Bed & Breakfasts in various Cities/Locations around the Globe.
Here is their Marketing Strapline that meets you as you first hit their Website:
‘35,000 properties, 170 countries • Over 9 million verified guest reviews • 24/7 customer service’
I like that - so I had to pop it in !! It is also worth noting that they have loads of sort of ‘Stories’ about Travel on the Homepage which are a bit like ‘ClickBait’ to get you actively engaging with the Website.
Headquartered in Dublin, HSW has offices around the world in London, Shanghai, Sydney, Seoul and Porto.
Serial Entrepreneur Ray Nolan founded HSW, formerly called Web Reservations International, in 1999. He sold the company ten years later for over €200 million of which he personally got about €100m.
HSW was formed to provide an affordable online global distribution channel for hostels and budget accommodation providers. Prior to 1999 no technology solution existed which enabled customers to make, and hostels to take, secure confirmed payments via the internet. In 2003, HSW acquired the next brand in its portfolio; Hostels.com. This was followed in 2005, by the acquisition of WorldRes, a hotel-focused OTA (Online Travel Agent), which HSW subsequently sold in 2008 as part of its strategy to refocus on its core hostels business.
For completeness, here is a very short Youtube Video with Ray Nolan which you might find interesting - but remember this is very historical and he is no longer with HSW (although there are some other videos with HSW which you might fancy looking at on Youtube):
You can view the Company’s Customer Facing Website here:
The website and mobile app operates in 19 different languages.
The ‘Investors’ Website can be viewed here:
I copied this text from the Hostelworld Group website:
“Market Leading Customer Proposition - HSW positions itself as (the) world’s leading hostel focused online booking platform. Hostels provide an opportunity to meet and interact with other international travellers, while offering affordable beds in central locations within most of the world’s top cities. With over 33,000 properties across approximately 170 countries globally, HSW offers a comprehensive, yet simple booking experience. This, combined with over 8 million customer reviews creates high customer satisfaction, with a ‘Net Promoter Score’ of 61 for desktop and 68 for mobile.
Market Leading Proposition for Accommodation Providers - HSW is a key distribution channel for hostels worldwide, providing a market leading hostel-focused online booking platform. HSW offers a lower cost distribution channel for accommodation providers than most other major OTAs (Online Travel Agents). Accommodation providers also have the opportunity to raise their profile and prominence within HSW’s website to push the sales of beds. Accommodation providers also have access to HSW’s online property management system, a booking engine technology which they can use to manage their businesses day-to-day, from check-in to inventory management.
Operating in a Growth Market - HSW operates in a growth market, providing significant opportunities for further penetration of the product. Consumer research conducted by HSW revealed that only 17% of respondents have stayed in a hostel in the last 12 months, 71% indicated they would consider doing so.
Experienced and Proven Management Team - HSW’s executive directors and senior management team have extensive experience in both leading companies and in the online leisure, travel and hospitality sectors including: Paddy Power plc, Betfair plc, eHarmony.com, Rank Group, Best Western International Group, Ladbroke’s plc, Sherry Fitzgerald plc. 33 years of combined experience in the online travel industry is demonstrated by the growth of the HSW business and the successful acquisition and integration of Hostels.com and Hostelbookers.com.”
I’m not sure how the last paragraph really fits in with ‘Strategy’ but it is useful for background so I have left it in.
They also have another bit on their Website headed up ‘Investment Proposition’ - it is quite good so I have chucked it in (note the “over 1.4m app downloads“ bit is clearly very out of date):
“In the first half of 2015, HSW invested in a global rebrand, committing an approximately 38% increase in marketing spend towards launching Hostelworld’s ‘Meet The World’ brand proposition. This brand and marketing investment is expected to continue globally, across all relevant regions with tailored strategic for specific markets. HSW’s marketing strategy is focussed around the consumer. Therefore to reach its target demographic, HSW will focus primarily on 4 key marketing channels: (i) digital, (ii) social and brand partnerships (iii) CRM (Customer Relationship Management) and (iv) brand.
As part of its ‘mobile-first’ strategy, HSW will continue to invest in its in-house iOS and Android product development teams. HSW has over 1.4m app downloads (as of 30th June 2015) and intends to build on its successful app platforms. HSW also intends to work closely with accommodation providers, providing more flexible pricing solutions, promotional deals and exploring new revenue streams.
As part of HSW’s geographic expansion, the group is increasingly focused on growth in the Asian market. The group will seek to continue build on its momentum in the Asian markets through the implementation of tailored growth strategies, including dedicated personnel in each market as well as implementing market-specific payment technologies.”
HSW include a sort of ‘Risk Register’ in their 2016 Annual Report on pages 32 to 37 which you can find here:
That section of the Annual Report is really worth reading and they include a lot of detail on the Mitigations they are undertaking and they see as helping control/reduce the Risks.
The Risks that particularly standout to me are as follows:
Without doubt this is always the toughest Section of any Stock Blog to write and when you don’t work in the Industry and/or have lengthy experience of it, this information is hard to nail down. From doing my trawl around HSW, the following elements of Competition have attracted my attention:
As a simple test, I just went to Google and typed in “Hostel Booking Websites” and the following Screen came up, where the first 3 Websites on the list are all HSW owned (I have not checked the others):
FTSE Small Cap
Ms. Paula Phelan (address below).
Hostelworld Group plc
High Holborn House
52-54 High Holborn
London WC1V 6RL
Company Registration Number
Numis Securities Limited
London Stock Exchange Building
10 Paternoster Square
49 Dawson Street
and statutory auditors
Deloitte & Touche House
Allied Irish Banks plc
1 Lower Baggot Street
Computershare Investor services PLC
Computershare Investor Services (Ireland) Limited
Sandyford Industrial Estate
Travers Smith LLP
10 Snow Hill
Sir John Rogerson’s Quay
Reports and Trading Updates etc. can be found here:
There have been some significant changes to the Board recently and you can read about these on the following RNS items - most seem to stem from the Chairman moving on:
Here is some info I copied from the Website about the main Directors:
“Richard Segal is Chairman of the Company. He is also Chairman of On The Beach Group Plc and Encore Tickets. Previously, Richard was Chairman for Esporta and Barratts PriceLess, a founding partner of 3i Quoted Private Equity, a non-executive director at The Kyte Group, Chief Executive Officer at PartyGaming Plc and Odeon Cinemas (where he led a management buy-out from the Rank Group) and Managing Director of Rank Group's entertainment sector. He holds a BA in economics from Manchester University and is a member of the Institute of Chartered Accountants of England and Wales.”
Note - Richard Segal will resign as Non-executive Chairman and Chairman of the Nomination Committee with effect from close of business on 1 December 2017.
“Michael Cawley joined the Company in October 2015 as Senior Independent Non-Executive Director and Chairman of the Audit Committee. Michael is also a Non-Executive Director of Ryanair, having joined the board in August 2014. Michael had previously served as Deputy Chief Executive Officer and Chief Operating Officer of Ryanair from 2003 to March 2014 and before that as Ryanair’s Chief Financial Officer and Commercial Director from 1997. Michael also holds directorships in Paddy Power PLC and in Kingspan Group PLC. Prior to joining Ryanair, Michael was Group Finance Director of Gowan Group Limited. Michael holds a Bachelor of Commerce degree and is a fellow of the Institute of Chartered Accountants in Ireland.”
Note - Michael Cawley, who has held the role of Senior Independent Director since 2015, will succeed Richard Segal as Chairman of the Board and Chairman of the Nomination Committee with effect from close of business on 1 December 2017.
"Feargal Mooney joined the Group in 2002 as Chief Operations Officer/Chief Financial Officer. In February 2008 he was appointed Chief Executive Officer. Prior to this Feargal held a role in financial planning and analysis at Baltimore Technologies and previously held the position of financial analyst at Pfizer Inc. in New York. Feargal has an MSc in Investment & Treasury from Dublin City University and a Bachelor of Commerce from University College Galway. Feargal is a graduate of the Leadership 4 Growth Management Program at Stanford GSB. Feargal is an associate of the Society of Investment Analysts in Ireland and a member of the CFA Institute.
Mari Hurley joined the Group in May 2007. She was appointed to the board in July 2007 as the Chief Financial Officer. Prior to this, Mari was the Finance Director at Sherry FitzGerald Group and previously worked at Bear Stearns. She is also a non-executive director of Ervia and the National Asset Management Agency. Mari is a fellow of the Institute of Chartered Accountants in Ireland, and trained at Arthur Andersen & Co in Dublin. Mari has a Bachelor of Commerce degree from University College Cork and a Masters of Accounting from University College Dublin. Mari completed the Advanced Management Program at Harvard Business School in 2006.
Andy McCue, Non-Executive, is currently the Chief Executive Officer at The Restaurant Group Plc having previously held the positions of Chief Operating Officer, Chief Executive and Head of Retail UK and Ireland at Paddy Power plc. Prior to this, Andy was a principal at OC&C Strategy Consultants for 2 years and also worked at Arthur Andersen Business Consulting for four years. Andy has a MA in Economics and Management from the University of Cambridge, and a Masters in Finance from the London Business School.”
Note - Andy McCue, a Non-executive Director since 2015, will succeed Michael Cawley as Senior Independent Director and Eimear Moloney will succeed Michael Cawley as Chairperson of the Audit Committee with effect from close of business on 1 December 2017.
Of course I noticed that the outgoing Chairman Richard Segal is also the Chairman at On The Beach OTB which I hold Shares in.
You can see piccies of them here:
And there are a few more Senior Managers here:
One thing that strikes me is that generally the Directors/Management look quite young - I dunno if that means much but hopefully they are energetic and dynamic even if they might lack a bit of experience !! In truth from these descriptions most of them seem to have worked for several companies.
Major Shareholders and Director’s Shareholdings
The attached picture is from SharePad - if you click on it, it should grow larger so you have a remote chance of actually being able to read it. Note at the bottom of the screen they list recent Director Share Deals - I have had a quick check and these look accurate.
The image below is from SharePad - note the word ‘Unconfirmed’ behind many of these Dates.
HSW last updated the Market on Trading, saying they were in-line with Expectations, with its Half-year Report on 22nd August 2017 which you can read here:
Note also from the ‘Calendar’ Section just above, Year End Results are due on 31st December 2017, which clearly isn’t long now - although I will be very surprised if they come out on a Sunday !!
From the ‘Highlights’ bit at the start of the Half Year Results, the following bits particularly appeal to me:
“Group bookings growth of 11% (to 3.9m bookings) with core Hostelworld brand up 21% during the period.”
“Strong Asia performance - inbound overall bookings growth of 18% (H1 2016: 10%)” (this is particularly interesting because HSW are strategically trying to build the Asia business so this suggests they are making some progress.)
“Group Net Revenue increased by 16% to €46.6m (H1 2016: €40.2M); 17% increase at constant currency, benefiting from an increase in Average Booking Value of 3% (H1 2016: decrease of 6%);” (Nice growth here, clearly backs up the growth in bookings.)
“Adjusted pro-forma Earnings Per Share of €0.11 (H1 2016: €0.08)” (Shows Earnings growth and this is about 37.5% increase which actually looks rather high - I suspect this is misleading and some sort of Accounting Adjustment is overstating this Growth Rate - however, clearly they are growing their Profits.)
“Underlying adjusted free cash conversion of 101% (H1 2016: 107%)” (This is tasty as it shows they are pretty good at turning Profit into Cash - which is what you would expect for an Internet Retail business really, where Cash is largely paid upfront I would assume - or at least a Deposit comes in early.)
“Cash balances of €17.7m at 30 June 2017, after payment of 2016 Final and Supplementary dividends in June 2017” (more evidence of Cash Generation which helps support the Dividend and clearly a nice cushion in case times get tough and of course a Strong Balance Sheet gives options such as the ability to do more Acquisitions or Share Buybacks or Special Dividends as has clearly already happened before.)
“Interim dividend of 5.1 euro cents per share (H1 2016: 4.8 euro cents), in line with stated dividend policy” (hard to argue with a Growth Company with a decent Dividend which is also growing - this is about 6.2% increase but the Final Dividend for the year will probably grow more).
Feargal Mooney the CEO does a comment and includes this bit which helps explain what I said about the Earnings Per Share looking a bit too high to be true - from looking back at previous Trading Updates, the story in 2016 was of a challenging environment in Europe caused they say by Terrorism fears and Brexit:
“The level of growth in H1 2017 was somewhat flattered by a weak comparative in H1 2016, and growth rates in the June to August period have been more modest. Our expectations for the full year outcome are nonetheless unchanged, and we have declared a 6% increase in the interim dividend.”
A bit further down they include this bit - something to note here is that this is much more punchy and clearer than the Strategic stuff from the Website which I shoved in earlier in this Blog. I see this a lot particularly with Smaller Companies where I guess they lack Resource to do consistent Updates across various bits of Communication they put out and the ‘Investors‘ information probably gets much less attention than the Customer-facing bits. I don’t see it as that big a deal - although in some cases the sloppiness is quite shocking - for example, don’t look at Telit TCM Website and Annual Report because the text involved is horrific !! :
The Group continues to make good progress in implementing our key strategic objectives. In our most recent annual report, we reported the Group's key objectives for 2017 which were:
(1) to invest in our Core Products competitiveness to ensure our platforms are the preferred choice for the growing number of young independent travellers worldwide to visit when planning their trips;
(2) to Differentiate our offering delivering features unique to the hostel product and enabling our customers to have a great experience throughout the research, booking and travel period;
(3) to establish a vibrant Community that encourages engagement with our platform, with other travellers and with hostels;
(4) to drive Revenue per Customer by increasing loyalty and providing an enhanced and more personalised service to travellers.”
Earlier under the ‘Risks’ Section I mentioned that Forex was something to consider - this bit from the Half Year Results might help:
“Foreign exchange risk
The Group's primary operating currency is the euro. The Group also has significant sterling and US dollar cash flows. Restated on a constant currency basis, revenues have increased by 17% (€6.9m) and Adjusted EBITDA has increased by 30% (€3.0m) for the six months ended 30 June 2017. Constant currency is calculated by applying the average exchange rates for the six months period ended 30 June 2017 to the financial results for the six months period ended 30 June 2016 on a month by month basis. The Group's principal policy is to match cash flows of like currencies, with excess sterling and US dollar revenues being settled into euros on a timely basis.”
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