Safestay sinks below NAV after interim loss grows

Safestay, the 'boutique hostel' chain founded by serial entrepreneur Larry Lipman, more than doubled sales in the first half but reported a larger loss before tax.

The AIM-listed company, which was created to fill a perceived gap in the market for "stylish, spotlessly clean, safe and sociable budget accommodation", generated revenues of £3.29m in the six months to 30 June from its initial locations in Edinburgh, York and London's Elephant & Castle and Holland Park, up from £1.4m last year that included only York and E&C locations.

Earnings before interest, tax, depreciation and amortisation (EBITDA) of £0.78m were up from £0.26m last time, which did included Holland Park opening costs and was before the Edinburgh acquisition.

Losses before tax rose to £0.49m from £0.25m, as Lipman cited the effect on the London market of the slower European tourism market this year, compounded by the launch of the Holland Park hostel into the market.

York and E&S both grew revenue and EBITDA, while Holland Park is still in its first year and although revenues were at the lower end of management's expectations it is receiving strong guest satisfaction surveys and is expected to reach its sales potential within the three year build-up period.

A refreshed group website is "performing well" and a new online booking engine has been "particularly successful".

Lipman's ambition is for Safestay to become "the leading premium pan-European hostel group" and with the systems and infrastructure in place, the management team are "active in seeking new opportunities in target gateway cities" - although in their quest for the right property at the right price the aborting of one potential purchase in the period will result in a one-off cost of £0.14m which will be incurred in the second half.

"Notwithstanding the softer London market and the headwinds facing our Holland Park site, there is plenty of encouragement in the business performance and we remain confident in the outlook for 2016 and beyond," said Lipman, who is also the man behind property investment firm Safeland and storage business Safestore.

Although net asset value per share increased by 14.2p to 58.0p at the period end, up from 43.8p a year ago, shares in Safestay were down 6.4% to 48.7p by midday on Monday, below their 50p placing price from 2014.