SiteMinder Front-Of-Mind For Brokers

Small Caps | Dec 14 2022

This story features SITEMINDER LIMITED. For more info SHARE ANALYSIS: SDR

Brokers are bullish on prospects for SiteMinder following a share price swoon since listing on the ASX.

-New coverage by three brokers on SiteMinder, all with Buy ratings
-Jarden sees structural growth for the company and the industry
-Evolution towards a transaction revenue model
-A review of recent financial results
-Average FNArena database target implies 81% upside to the share price

By Mark Woodruff

SiteMinder ((SDR)), which owns one of the largest global hotel commerce platforms, provides travel software to hotels and accommodation providers to help sell, market, manage and grow their businesses.

Various tools enable an increase in reservations through direct customer acquisition and allow entry into established global and regional travel channels.

The channel manager company began trading on the ASX in November 2021 with a bang. The day after listing, shares were more than 50% higher than the $5.05 initial public offering price.

Since then, the share price has slowly ground down to the current $3.00 level, which contrasts starkly with the average 12-month target price of $5.43, set by four Buy-rated brokers in the FNArena database. The target implies 81.1% upside for SiteMinder shares.

In the last month or so there has been a rash of broker initiations, including Credit Suisse, who set a $4.00 target. Outside the database, Buy-rated Jarden and Wilsons also began research with targets of $3.70 and $4.07, respectively. 

At the time of listing, impacts of border closures were still lingering. Growth has since re-accelerated, noted Wilsons, and in recent quarters returned to a point well above pre-covid levels. In line with guidance, the broker now expects free cash flow breakeven by the fourth quarter of FY24.

SiteMinder is evolving beyond a pure-play subscription model towards a transaction revenue model with key products including Demand Plus, SiteMinder Pay and the Global Distribution System.

The company’s software is multilingual and at present customers are spread across the Americas, EMEA (Europe, Middle East Africa), and the Asia-Pacific region. Operating on a large scale enables SiteMinder to tap into large property groups and serves as a point of differentiation from single-country localised software providers, points out Jarden.

Despite potential for weaker consumer spending, this broker believes company and industry structural growth should more than offset cyclical pressures.

Moreover, Credit Suisse believes labour supply issues and changing consumer preferences will be catalysts for driving higher rates of technology adoption by hoteliers.

The analysts noted how customer experience is now highly digitalised both prior to, and post-accommodation. As a result, hoteliers are less likely to regard “High Tech” as a distraction from a consistent and elevated level of customer experience. 

The transition toward transaction revenues 

SiteMinder receives periodic subscription fees paid to gain access to the platform and use the products, which Jarden points out is leveraged to the number of properties and the ability to push up price. 

The company is now increasingly deriving transaction revenue via fees paid by subscriber customers in connection with each applicable transaction they conduct on the SiteMinder platform. Leverage in this instance is related to the gross booking value of a hotel, explains the broker.

There are three main transaction-style products including Demand Plus which helps drive bookings by making a property visible on the high-performing travel sites Google Hotel Ads, Trivago, and TripAdvisor.

Global Distribution System is a worldwide reservation system, while SiteMinder Pay easily enables online payments using the SiteMinder Booking Engine.

A review of recent financial results

In late-October, both Citi and UBS updated their research and both brokers agreed consensus forecasts would need to be raised following SiteMinder’s September quarter trading update

UBS noted accelerating momentum for subscriptions and transactions, while Citi highlighted annual recurring revenues were growing above pre-covid levels and remained confident the company would grow revenue by 25% over the next two years.

Citi and UBS are Buy-rated with targets of $5.20 and $6.80, respectively.

Following FY22 results in August, Neutral-rated Goldman Sachs barely changed its forecasts and stuck with its $4.20 target. FY23 transaction revenues were expected to rise to 33% of total revenue, up from 30% in FY22, and offset lower subscription numbers. 

Ord Minnett raised its target price to $5.73 from $5.61 in reaction to the full year results after applying a higher multiple to its forecast earnings. 

The broker observed a pivot by SiteMinder to transactional products and the addition of new subscription products, which should provide a serious X-factor. 

Outlook 

Wilsons likes the platform’s exposure to an ongoing travel recovery, the company’s accelerating customer net additions, and the attachment of products alongside the core subscription platform.

This broker anticipates upside when China walks-back its zero-covid policy and sees upside from new market expansion by geography (eg India) or by entry into the vacation rental space.

Counterintuitively, Credit Suisse expects a decline from current elevated levels of global travel will be a catalyst for further SiteMinder growth. 

High room rates and occupancy levels are delaying some hoteliers from updating legacy systems, according to the broker. A shortage of available labour in the hospitality industry should accelerate technology adoption in less buoyant times.

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