Helloworld: Finally profitable

About the author:

Author name:

By Belinda Moore

Job title:

Senior Analyst

Date posted:

31 August 2022, 8:00 AM

Sectors Covered:

Agriculture, Food & Beverage, Travel and Chemicals

• Helloworld's (ASX:HLO) FY22 result beat expectations with the group returning to modest profitability in the 4Q, despite the sale of the Corporate travel business. Cashflow and the balance sheet were also stronger than expected.
• In a sign of confidence, HLO has rewarded shareholders with a 10cps final dividend. It also provided FY23 guidance which was well above consensus.
• Backing out its investment in CTD from its EV, HLO is materially undervalued, trading on a recovery year EV/EBITDA multiple of only 2.9x. Add maintained.

FY22 was stronger than expected; returns to modest profitability in the 4Q

In FY22 (excluding Corporate), HLO’s TTV rose 140% to A$1.1bn (4Q A$448.0m), travel-related revenue increased 60.2% to A$63.5m and the underlying EBITDA loss decreased to A$10.6m.

EBITDA, cashflow, balance sheet all beat; dividend is a nice surprise

HLO’s result was messy given the sale of Corporate. HLO owned this business for nine months in FY22. If we include Corporate EBITDA of A$3.6m, HLO’s underlying EBITDA loss was A$7.0m, which was materially better than MorgansF of A$9.0m.

Following a strong 4Q (very profitable June, with April loss-making and May breakeven), HLO was EBITDA positive (not quantified) for the period despite the loss of the profitable Corporate business.

Operating cash flow was materially better than expected, with HLO reporting an inflow of A$9.4m (helped by tax refund benefit). Post the sale of Corporate, HLO ended FY22 in a strong net cash position of A$89.1m. The Board declared a final dividend of 10cps, fully franked. We hadn’t assumed a dividend.

FY23 guidance ahead of consensus; full recovery expected in FY25

In a sign of confidence, HLO has provided FY23 EBITDA guidance of A$22-26m, which at the midpoint was 14.3% ahead of our previous forecast of A$21.0m and 48.1% ahead of consensus of A$16.2m. On the conference call, management said that the positive trading conditions seen in June have continued in the 1Q23. 

Based on booking in the 2H22, HLO expects strong inbound travel demand for ANZ over the southern hemisphere summer. Sales for Inbound and Wholesale are now back at over 60% of 2019 levels.

HLO expects that as air capacity to Australia increases and the cost of flights starts to normalise, this will increase back to 80- 100% of pre-COVID levels by the beginning of CY23.

HLO highlighted that despite a challenging macro-economic environment and reduced consumer confidence, travel is continuing to be an important part of the family budget.

HLO said that its retail networks have stabilised and it will continue to invest in supporting new and existing franchisees to return to shop fronts. HLO travel agent numbers fell 4.8% to 2,064 as at June 2022.

Since the 1H, HLO has hired 130 new staff. In May HLO launched the ‘Helloworld Academy’, which will support the network in onboarding new travel professionals and has so far been successful with 145 new trainees enrolled.

Assuming conditions continue to recover and there are no further COVID relapses, HLO is confident that the leisure travel market will recover to pre-COVID levels on a full-year basis by FY25.

Management believes it can return to FY19 levels of EBITDA excluding Corporate (~A$55m pre AASB 16) in FY25, with potential upside from the efficiency benefits of its new technology and structural cost out.

We upgrade our forecasts

Following HLO’s higher than expected FY23 EBITDA guidance, we have upgraded our forecast by 16% to A$24.3m. We have left FY24 unchanged and expect HLO to fully recover in FY25 with EBITDA of A$58.0m (post AASB 16).

The upgrades at the NPAT level are more material reflecting lower D&A.

Add rating; next catalyst is 1Q23 result in October

With a strong balance sheet, HLO is well placed to capitalise on the pent-up demand for Leisure travel and acquisition opportunities. Backing out its CTD shareholding from its EV, HLO is materially undervalued trading on a recovery year (FY25) EV/EBITDA multiple of only 2.9x.

However, it is a late-cycle COVID recovery story given its exposure to inbound and outbound travel to and from ANZ and therefore investors will need to be patient. Our valuation has risen to (login to view). Add maintained.

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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.