Hostelworld reports rise in bookings despite terrorist attacks in Europe

Hostelworld Group reported a 16% rise in 'core' bookings over the first six months of the year despite the recent rise in terrorist attacks around Europe and reaffirmed its expectations for the full-year.

Total bookings on the other hand slipped 2.7% to 3.5m in comparison to a year ago as the company continued its strategy of shifting away from lower margin bookings, focusing instead on its flagship brand Hostelworld, which at the end of the period accounted for 85% of the group's total bookings.

Chief executive Feargal Mooney said: “The core Hostelworld brand has delivered strong growth in the first half of the year against a background of more challenging market conditions, particularly in Europe as a consequence of a number of terrorist attacks in key European destinations.”

The global hostel booking platform saw sales drop 9% versus the year-ago period to £40.2m (£33.5m), despite which operating earnings improved thanks to cost-cutting and lower marketing spend.

Overhead costs were cut from 50% to 43% as a percentage of sales.

The company’s earnings before interest, tax, depreciation and amortisation for the half year period ending 30 June 2016 were €10.1m (£8.4m), which was higher than analysts at Numis estimate of €9.5m (£7.9m).

Adjusted profits after tax came in at €7.7m (£6.4m) and adjusted pro-forma earnings per share were €0.08.

Out-turn EBITDA margins improved from 23% to 25% despite the hit from terrorism to average booking values to European destinations, in part as Asian travellers chose to stay closer to home, according to Numis.

The group continued to refine its digital marketing strategy, with bookings from not-paid-for channels improving by 61% while higher commission bookings through the company’s Elevate product increased by 28%. Like Google Adwords, Elevate allows hostels to claim a better position on the group’s webpages by paying a higher rate of commission.

Full-year expectations unchanged

Significantly, trading during the key months of July and August had been in-line with its expectations, the company said.

Its full-year expectations were unchanged too, despite the multiple risk factors it was facing, including the macroeconomic uncertainties and currency fluctuations surrounding Brexit.

“Market conditions have been challenging (disruptive impact of terrorism on travel, currency volatility) but HSW has maintained focus on what it can control; brand, technology, marketing and costs…In our view, the hostel segment continues to offer attractive growth opportunities and Hostelworld, with the "drag” of the supporting brands reduced is well placed to benefit” Numis analysts Wyn Ellis, Tim Barrett and Richard Stuber said in a research note sent to clients.

"The shares are undervalued on a price-to-earnings multiple of 9.1x and a dividend yield of 8.3%," they added.

The company declared an interim dividend of 4.8 euro cents per share, in line with its stated pay-out policy.

Share price at 1029 BST on Tuesday was up 7.54% at 167.76p