Shares in Helloworld Travel Ltd (ASX: HLO) are surging this morning after the company reported a strong 1st quarter and upgraded profit guidance for this financial year.
Helloworld, created in 2013, is an Australian and New Zealand travel distribution company with 2,200 staff spread across Australia, New Zealand, Fiji, the USA, Asia, India and Europe. It operates retail travel networks, corporate travel management services, destination management services, air ticket consolidation, wholesale travel services and online operations.
1st Quarter Results
For the 3 months ended September 30, Helloworld managed to grow total transaction value (TTV) by 10.4% to $1.88 billion.
Most segments of the business experienced growth, with the exception of Wholesale TTV in New Zealand which fell by 14.2% mainly due to the elimination of unprofitable contracts.
Steady growth in the Australian Retail and Wholesale businesses continued despite Australian Inbound declining by 9.7%.
Unaudited earnings before interest, tax, depreciation and amortisation (EBITDA) came in at $24.7 million for the quarter, a 7.7% increase on the previous corresponding period (pcp). The company’s EBITDA to revenue margin improved slightly to 24.6%, up from 24.4% for the pcp. Both periods exclude the impact of the new lease accounting standard.
The company completed the acquisition of TravelEdge last month and as a result, now has annualised corporate TTV of over $1.6 billion. This makes Helloworld Travel’s corporate division the second largest corporate travel business in Australia and New Zealand.
Management Comments And Outlook
Commenting on the result, CEO Andrew Burnes said, “We are very pleased with the results for Q1 FY20 are tracking according to our forecasts. While there has been some softening in inbound demand, our businesses in retail, wholsale and corporate have continued to attract both repeat and new customers and the professional travel services provided by our 2,400+ retail network members on both sides of the Tasman is helping drive growth.”
Helloworld gave earnings guidance for EBITDA in the range of $83 million to $87 million as recently as 5 weeks ago. Following on from the recent TravelEdge acquisition, management have seen it necessary to come out and upgrade their EBITDA guidance to a range of $86 million to $90 million.
Today’s upgrade to earnings guidance is likely what has driven shares in Helloworld 4% higher in morning trade.
Time To Buy?
With a market cap of under $600 million, Helloworld is a mid-cap company with potential for significant growth in the coming years. Trading on a P/E multiple of 14 and offering a fully franked dividend yield of 4.5%, the company might be worth a closer look.
Peers Webjet Limited (ASX: WEB) and Corporate Travel Management Ltd (ASX: CTD) have suffered share price declines recently, which has turned them into potentially attractive buying opportunities.
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At the time of publishing, Luke has no financial interest in any companies mentioned.
