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by John Woolfitt, Atlantic Capital Markets
Time To Go Back To The Beach In Spite of Covid-19?
Fundamentals & Statement Summary
With over 20% share of online sales in the short haul beach holiday market, On The Beach (LON: OTB) are one of the UK’s largest online beach holiday retailers. The group’s long-term mission to become Europe’s leading online retailer of beach holidays is fuelled by significant opportunities for growth on the back of innovative technology, low-cost base and a strong customer-value proposition.
On Tuesday June 30th, OTB announced interim results for the 6 months to March 31st, and said that prior to the escalation of COVID-19 in Europe, it had been trading well. In the first four months of FY20 and following the collapse of the Thomas Cook Group, OTB priced its offerings competitively, and saw total holiday sales grew by 29% for Summer 2020 departures. H1 revenue of £21.4m was down 66% on prior year due to COVID-19 related cancellations, with adjusted PBT down £13.4m to £2.3m due to a significant reduction in demand from mid-February when COVID-19 began to spread to Europe. Net debt of £13m excludes £68.8m of customer monies held in a ring-fenced trust account, and following a successful share placing on 22 May 2020, the group cash position was £50.5m, plus a £75m RCF facility which, at 31 May 2020, remained undrawn.
CEO Simon Cooper commented on the excellent progress in the first four months of the financial year, with the Thomas Cook collapse “driving record levels of brand awareness and achieving sales growth of almost 30% for holidays departing in Summer 2020.“
He added “The onset of the COVID-19 pandemic led to a rapid slowdown in demand for foreign travel followed by the total closure of airspace across Europe by mid-March. Our staff responded brilliantly to ensure that the Group delivered the highest possible customer service standards in the most difficult of circumstances”….”The flexibility and asset light nature of our business model together with our recently strengthened balance sheet and the actions we have taken since the middle of March means we are well placed to capitalise on the inevitable structural changes in the market post COVID-19. As a result, the Board continues to look to the future with confidence.”
Chart and Technicals
Source: FactSet and Hargreaves Lansdown
The inevitable ‘Covid cliff fall’ that characterises the charts of many stocks at present started at the end of February 2020, with the group losing 66% of its value during the following 25 or so days. A strong recovery during March saw OTB shares regain the 50-day moving average, currently at 290p, which it has held onto since April 16th. Provided the stock continues to hold the 50-day moving average, there is every reason to expect OTB shares to regain the benchmark 200-day moving average (purple indicator), currently at 358p, by the end of July 2020.
Summary and Atlantic View
While some may view OTB as a contrarian trade, our dealing team are attracted to OTB’s resilient performance before and during the COVID-19 crisis. The group responded strongly and took full advantage of the Thomas Cook collapse, leading to 30% growth in summer holiday sales pre-Covid, largely due to its innovative business model and low cost base. Added to this OTB have a strong cash position, boosted by strong shareholder support for the May 2020 placing. In summary, Atlantic Capital Markets are backing a long trade position on OTB, governed very much by the technical picture (358p initial target), and while the uncertain backdrop warrants running a tight stop loss, we are of the view that OTB is better placed than its peers to grow market share as the world starts to move again. In this case, it is time to go back to the beach!
To take advantage of this trading idea, speak to a member of our dealing team on 01872 229000 or visit the Atlantic Capital Markets website here
Brand CEO Alan Green talks Bluefield Solar #BSIF, Thomas Cook #TCG, Petrofac #PFC & Andalas Energy #ADL on Vox Markets podcast
Brand CEO Alan Green discusses Bluefield Solar Income Fund (BSIF), Thomas Cook Group (TCG), Petrofac (PFC) & Andalas Energy & Power (ADL) with Justin Waite on the Vox Markets podcast. Interview starts at 12 minutes 20 seconds.
Thomas Cook Group TCG updates on its expected results for the year to the end of September and at first it looks like a mixed bag until you get to the important bits, the main one of which is that the full year dividend is being suspended. On top of that it has been impacted in the lates market where the UK was particularly disappointing. the prolonged period of hot weather in the key summer trading period is blamed for a larger-than-anticipated decline in gross margins, whereas other tour operators welcomed it as being good for business. Perhaps this is indicative of the quality of Cooks management..The final result is expected to be around £30 million lower than it had previously hoped for
Intertek Group plc ITRK is going from strength to strength with organic revenue growth accelerating during the first 10 months of the year. In the first half group revenue rose by 3.4% whilst in the quarter from July to October growth increased to 4.5%. Generally growth in different divisions is described as varying from robust to strong.
Greggs plc GRG Total sales rose by 9.0% in the nine weeks to 24 November and full year 2018 profit before tax is expected to be at least £86 million.The improved trading performance reported in the third quarter trading update strengthened further in October and November. Like-for-like sales sales in the nine week to the 24th November are ahead of expectations.
Pennon Group plc PNN delivered a strong performance in the first six month to the 30th September, with profit before tax up by 8.7% and EBITDA by 8.1%. Good news for the consumer is that South West waters average bills are lower than they were 9 years ago, with further falls to come over the next seven years.
Renew plc RNWH trumpets another set of excellent results for the year to the 30th September, with profit before tax down by 25.8% and adjusted earnings per share by 4.6%. As is perfectly normal in these circumstances the dividend is to be hiked by 11%. I wonder also why year end net debt has risen so sharply to £21.4m. from a net cash position of £3.9m at the end of last year. Perhaps it is due to that excellent set of results.or the 0.8% fall in group revenue.
Taylor Wimpey TW With profit before tax surging by 46.8% during the six months to the first of July Taylor Wimpey saw demand for its homes remain strong in the first half despite some wider macroeconomic uncertainty.The interim ordinary dividend is to be increased from 2.3p per share to 2.44p. The number of homes completed fell slightly by 151 to 6,497 due mainly to bad weather during the first quarter and the average selling price rose at a more modest rate than in the recent past, from 287,000 to 295,000. Profit before tax rose from 205m. to 301m. A special dividend for 2019 of £350 million is re confirmed.
Rentokil plc RTO claims continued positive momentum during the first half to the 30th June and is increasing its interim dividend by 15%. Profit before tax fell by 81.5% and basic earnings per share by 85.2%, unless you prefer your statistics on an adjusted basis in which case the figures were a more acceptable 1.5 and 1.9% respectively. Full tear guidance remains unchanged.
Greggs plc GRG claims to have delivered a resilient performance despite challenging market conditions during the six months to the 30th June. The ordinary interim dividend is to be increased by 3.9% but it is anticipated that underlying profits before exceptional costs for the full year will only be at a similar level to 2017.
Thomas Cook Group plc TCG produced strong revenue growth in the third quarter whilst for the year as a whole so far, growth in both new and retained customers has been strong, at 12% and 5% respectively. Bookings for this summer have risen by 11%. The company anticipates that growth in full year underlying operating profit will be at the lower end of market expectations as continued margin pressure in the UK and continued aggressive pricing in the Spanish Islands from the competition plus bed cost inflation from hoteliers, will impact results..
Just Eat plc JE. Has produced a strong first half performance, with revenue for the six months to the 30th June rising by 45 %, orders by 30% and adjusted basic earnings per share by 13%. Despite these figures, profit before tax fell by 3% because of the additional costs incurred in the acquisition of Hungry House. Revenue guidance is raised for for the full year to between £740 – £770 million, up from £660 – £700 million.
Countryside Properties CSP The half year to the 31st March saw excellent progress and robust trading in all regions. After strong growth the interim dividend is to be increased by 24% with reported revenue rising by 14%, operating profit by 19% and basic earnings per share by 23%.
National Grid plc NG produced a strong operational and financial performance for the year to the 31st March On a statutory basis profit before tax rose by 24% and earnings per share by 116%. On an underlying basis the figures were 4% and 3% respectively. Medium term growth is expected to beat the top end of the 5-7% range.
Royal Mail plc RMG With parcel volume the best in four years and a resilient letter performance, the year to the 25th May was another successful one for Royal Mail, despite a challenging environment., Revenue rose by 2% and profit before tax edged up from £559m. to £565m. whilst basic earnings per share rose from 41.1p to 45.5p. The dividend for the full year is to be increased by 4%.
Experian EXPN put in a strong finish to the year with fourth quarter total revenue growth of 12% or on a like for like basis, 8%. The strong performance came despite profit before tax falling by 7% which is deftly transformed to a rise of 7% at actual benchmark rates, enough to justify a 10% rise in the second interim dividend.
Thomas Cook Group TCG The half year to the 31st March saw like for like revenue rise by 5% and following a strong airline performance coupled with a reduction in net finance charges the seasonal winter loss before tax was improved by 16m. Summer demand is strong with bookings up by 13%.
Churchill China CHH is making good progress in the current year, with trading since March ahead of last year. Further progress is being made in both export markets and in the UK.