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Hostelworld Group (LSE:HSW) is a UK inventory with a mission to “assist travellers discover individuals to hang around with”. As its identify suggests, it specialises in promoting hostel lodging in over 180 nations.
The inventory first got here to my consideration on 19 June. That was the day on which it introduced a £5m share buyback programme. The group’s share worth closed that day 23.5% increased at 147p.
A distinct story
However yesterday (10 July), the shares tanked 8% after the group launched a disappointing buying and selling replace for the six months to 30 June 2025. Development seems to have stalled with each web income (€46.7m) and web bookings (3.7m) unchanged from the identical interval in 2024.
After the pullback, the group’s shares now change arms for round 128p. That is roughly 17% decrease than their 52-week excessive.
Low-cost and cheerful
As you’d count on from an organization working in a price-conscious market, Hostelworld’s a high-volume, low-margin enterprise.
An indicator of how low-cost its hostel lodging might be is the group’s web common reserving worth (ABV). This fell by 1% in the course of the first half of the 12 months to €13.40. Based on its web site, in the course of the first week of August, it’s attainable to get a mattress near the centre of Paris for €23 an evening.
Not surprisingly, the enterprise was badly affected by the pandemic. However it’s having fun with higher occasions now. It has ambitions to develop via acquisition. The group’s additionally seeking to broaden additional in Latin America and Asia, well-liked locations for budget-conscious travellers.
Throughout the second half of the 12 months, it hopes to renew its dividend. The intention is to return 20%-40% of adjusted revenue after tax to shareholders.
Utilizing final 12 months’s adjusted EPS of 13.97 euro cents (12.04p) as a information, this is able to be 2.41p- 4.82p, implying a formidable yield of as much as 3.8%.
Execs and cons
Nonetheless, there are dangers.
Covid-19 reminded us how susceptible the journey business might be to widespread disruption. And there’s nowhere to cover in a low-margin enterprise if issues begin to go flawed.
Cyber safety threats are additionally an ever-present threat for any on-line enterprise. Additionally, the sector stays very aggressive.
However what I like most in regards to the firm is its skill to generate money. Throughout 2023-2024 it repaid (web) €38.8m of borrowings. As of 31 December 2024, it reported a web money place of €1.7m.
And its shares are at present buying and selling at 10.5 occasions historic earnings. In comparison with fellow journey agent, On The Seashore (20.8), that is low-cost. Based on the London Inventory Trade, the sector common is 14.8.
Nonetheless, the important thing query is whether or not the flatlining of bookings is a blip or the primary signal of a extra elementary downside.
After all, no one is aware of for positive. However taking a look at June in isolation, each reserving volumes and the group’s ABV elevated. And though European mattress costs are falling barely, that is serving to to spice up demand.
As well as, though not anticipated to be launched till later this 12 months, Hostelworld says its different progress initiatives are progressing as deliberate.
On this foundation, it sounds as if progress has resumed as soon as extra and that the corporate has an thrilling interval forward. Lengthy-term buyers might contemplate including the inventory — which at present trades at a reduction to its friends — to their portfolios.
