Jefferies hops on board 'disruptive' On the Beach

Jefferies' analysis of the group led it to believe that On the Beach's robust growth in its core business looked set to be supplemented by its 2019 entry into the offline market and its push into the long-haul travel sector.

"In a challenging environment, a disruptive business model with a robust balance sheet and surplus cash generation warrants a premium versus peers," said the investment bank.

Jefferies feels that OTB recent acquisition of Classic Collection will give it quality access to the "ripe for disruption" offline market given tension between large tour operators and independents and regulations which have squeezed independent's margins.

Regarding OTB's entrance into the long-haul market, Jefferies thinks declining fares, capacity growth and a focus on "experience" travel will unlock opportunities for the group by converting current long haul traffic, developing hotel relationships and getting margins back into check in the airline segment of the package.

On the other hand, Jefferies did note that longer-term risks do still remain within OTB business model.

"We deep dive online competition, where we think competitor LoveHolidays is making material progress. We also identify the flight component as a key margin risk."

"However, we think that OTB's continued investment in technology, as well as growth into new products and distribution streams, will mitigate these risks over the short/medium term."