Helloworld: Get ready to say “Hello World”
About the author:
- Author name:
- By Belinda Moore
- Job title:
- Senior Analyst
- Date posted:
- 22 February 2022, 10:30 AM
- Sectors Covered:
- Agriculture, Food & Beverage, Travel and Chemicals
- The 1H22 continued to be a challenging period for Helloworld (ASX:HLO) given COVID-related travel restrictions and materially less government support. However, the result was better than we expected. Tight cost control saw HLO keep losses to a minimum.
- 2H22 outlook comments were stronger than expected with a breakeven or better outcome in the 4Q22. With domestic and international borders reopened or about to reopen, HLO was upbeat about the pent-up demand for travel.
- Backing out its investment in CTD from its EV, HLO is materially undervalued, trading on a recovery year EV/EBITDA multiple of only 4.0x. Add maintained.
Event: 1H22 result beats expectations
In 1H22 TTV rose 60.4% to A$694.3m (1Q A$266.5m, 2Q A$427.8m), travel-related revenue increased 45.2% to A$40.3m and HLO reported an EBITDA loss of A$5.2m (1Q A$3.6m, 2Q A$1.6m). TTV and EBITDA beat our forecast.
Analysis: materially higher TTV but less Gov support = flattish EBITDA
The 1H22 was a credible outcome considering travel restrictions and there was materially less government support during this period. TTV was approx. 22% of pre-COVID levels over the half. HLO maintained strict cost control. The result also benefited from Corporate being profitable over the 1H.
Monthly operating cash outflows were ~A$1.5m; however, due to a reduction in client cash (refunds and supplier payments), timing of overhead payments and payment of employee entitlements, the operating cash outflow was materially worse than expected at A$26.1m (vs. A$8.9m in the pcp and MorgansF -A$7.5m).
HLO ended 1H22 with modest net debt of A$1.0m.
Outlook is improving with borders reopening
No formal FY22 earnings guidance was provided. However, HLO did say that the business will incur cash losses of A$1.0-1.5m per month over the 3Q22 and in the 4Q22 it intends to break even or be slightly (EBITDA) profitable.
HLO has guided to modest profitability in FY23 and believes it can return to FY19 levels of EBITDA excluding corporate (~A$55m) in FY24-25, with potential upside from the efficiency benefits of its new technology and structural costs out.
HLO expects domestic and international travel to return rapidly with the opening of the ANZ borders as well as the WA state border. The business has received many enquiries and bookings already (both inbound and outbound). Specifically, HLO has significant forward (international) bookings for the latter part of CY22 and throughout CY23. Most domestic bookings are for the next 3-6 months.
It noted that consumers are cashed up and spending more on travel. As demand returns, there is already strong demand to use an agent as travel is complicated due to COVID-related travel restrictions (every country has its own set of rules and regulations).
Additionally, HLO expects to win significant market share given the closure of approximately half the bricks and mortar stores in ANZ. HLO’s agent numbers have proven to be relatively resilient (fell 4.7% to 2,168 in 1H22 vs pcp).
The sale of Corporate is on track for completion in March and will boost its liquidity position by approx. A$175m.
Given HLO’s stronger-than-expected 2H22 outlook comments, we have reduced our FY22 EBITDA loss to A$9.0m from A$13.5m previously. We forecast HLO’s earnings to recover to proforma FY19 levels (plus cost out) in FY24 (or EBITDA of A$57m).
With a strong balance sheet post the sale of Corporate, HLO will be 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 (FY24) EV/EBITDA multiple of 4x.
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.
Share price catalysts include the completion of the sale of Corporate, increasing international arrivals/departures and accretive acquisitions. The key risk is if new COVID variants continue to emerge, further delaying the travel recovery.
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