Small Caps | Mar 28 2023
This story features HELLOWORLD TRAVEL LIMITED, and other companies. For more info SHARE ANALYSIS: HLO
Tapping into the Scandinavian market, Helloworld has acquired an interest in Norway-based Australiareiser, bringing its ResWorld platform to Europe.
-Helloworld acquires stake in travel business Australiareiser
-Purchase offers opportunity to demonstrate value in ResWorld platform in Europe & UK
-Both international and domestic travel recoveries continue
By Danielle Austin
Helloworld ((HLO)) has accelerated the launch of its ResWorld system into Europe with the acquisition of a 34% equity stake in Australiareiser for an undisclosed sum.
Australiareiser is a Norway-based business-to-consumer travel business and the largest specialist travel wholesaler from Scandinavia to Australia, New Zealand and the South Pacific. With offices in Oslo, Copenhagen and Stockholm, the purchase gives Helloworld access to a wide segment of the Scandinavian market.
Expected to be earnings accretive from FY24, Australiareiser is expected to operate as the launch customer from which the company can proliferate use of its in-house developed mid-office system ResWorld in Europe, explains Shaw and Partners (Buy, target price $3.00). As a launch platform, this should allow Helloworld to demonstrate the value of its proprietary system to other retailers and wholesalers in Europe and the United Kingdom.
With the ResWorld platform already utilised by more than 160 agencies across Australia and New Zealand, Helloworld is anticipating a more than doubling in registered users in the coming year.
Shaw and Partners sees Helloworld continuing to make significant progress on a number of fronts, with the company continuing to execute on its corporate turnaround strategy. The broker feels attractive industry trends and dynamics in both domestic and international travel should prove favourable to Helloworld, in particular highlighting that passenger traffic is expected to surpass historic, pre-covid peaks in time.
Given its vastly different business model to perceived peers and its zero bank debt, Shaw and Partners finds Helloworld better positioned and less restricted to respond to a changing market than competitors Flight Centre Travel ((FLT)), Webjet ((WEB)) and Corporate Travel Management ((CTD)).
Interim result reflects transformation since pre-covid
Last month's interim result release marked the first full six month period since the sale of Helloworld's Corporate business. The result saw the travel agent lift full year earnings guidance by 25%, and reflected key efficiency benefits compared to pre-covid achieved through new technology and a structural cost out.
The ongoing quarter-on-quarter improvement in total transaction value and profitability is demonstrative of continuing recovery in travel demand in Australia and New Zealand despite economic uncertainty, so says Morgans. Total transaction value increased 209% in the period to $1.21bn, while revenue was up 151% to $73.3m. While volumes have, to date, remained below pre-covid levels, higher pricing has largely been able to offset impact to total transaction value.
This broker (Add, target price $3.14) reiterated company commentary that bookings volumes are anticipated to increase as airfares normalise. Helloworld remains confident the leisure market will recover to pre-covid levels by FY25, and Morgans believes the company’s current strong balance sheet leaves it well placed to capitalise on pent up leisure demand.
While not looking to diminish the value of Helloworld’s earnings upgrade, Ord Minnett (Hold, target price $2.08) feels it is important to consider the upgrade in the context of deterioration of the company’s balance sheet and cash position following the sale of its corporate operations.
This broker highlights Helloworld’s cash position declined to $47.6m from $83.1m in the latter half of 2022, largely as a result of the payment of a 10 cents per share dividend. Negative operating cash flow was also a contributing factor, although Ord Minnett did acknowledge the first half is traditionally weak.
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