Small Caps | Jan 25 2023
This story features SERKO LIMITED. For more info SHARE ANALYSIS: SKO
Serko has successfully alleviated some market concern around the ability of its Booking.com for Business joint venture with a better than expected start to the new year.
-Serko proves potential in its Booking.com partnership with a better than expected start to 2023
-The company upgraded full year revenue guidance to NZ$42-27m
-Ongoing development of a final user interface for the platform offers further volume upside, once complete
By Danielle Austin
Strong web traffic to Booking.com for Business has underpinned a stronger than expected start to the calendar year for managed travel market software solutions provider Serko ((SKO)), supporting the company in upgrading its full year revenue guidance.
In what had been marked as a significant market opportunity, Serko signed an agreement with Booking.com in 2019 to power its business-to-business platform. Given the timing of the deal, impacts of covid on the travel industry have dragged on Serko’s ability to prove the potential of the joint venture to date.
Serko’s joint venture gave the company a new ability to reach small and medium business customers.
According to Ord Minnett (Buy, target price $5.19), Serko’s share price had been under pressure recently due to increasing market worries about the performance of this key JV, but Serko's latest market update suggests otherwise, with the broker assuming Serko and Booking.com have been working to ensure the new platform is a robust commercial product.
Ord Minnett does expect the current live version of the platform is far from a finished product, meaning a final iteration of the product could be expected to deliver a significant volume increase. Currently, the Serko and Booking.com partnership is the key driver underpinning Ord Minnett’s positive outlook on the stock.
A slowing macro environment does pose some risk to Serko’s outlook, with risk remaining of a renewed slow down in travel or of booking cancellations, but corporate travel should prove more resilient than leisure travel.
Analysts respond positively to market update
Analysts have largely read the update as an indicator that Serko’s Booking.com for Business partnership is tracking in the right direction. They like that web traffic to the platform appears to have improved since late November.
Citi (Buy, target price $4.00) expects strong operating leverage could emerge, particularly given Serko appears to be slowing hiring.
This broker highlights results year-to-date are particularly positive considering a user interface update for Booking.com for Business is still in development and early testing, and has potential to drive a higher conversion rate once in place. Following Serko’s guidance upgrade, Citi lifts earnings forecasts by 13-35%.
Jarden (Neutral, target price NZ$3.15) notes the guidance upgrade at the midpoint represents an 18% beat to management's prior guidance. This broker does see some scope for caution into FY24, but considers the Booking.com joint venture to have positive exposure to more resilient small and medium enterprise corporate travel trends.
Jarden expects the next twelve to eighteen months to be a critical period for Serko. Among a number of growth opportunities, which Jarden expects can deliver upside if the company can demonstrate traction. Product delivery is expected from the company by mid-2023.
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