Helloworld: Recovering faster than expected
About the author:
- Author name:
- By Belinda Moore
- Job title:
- Senior Analyst
- Date posted:
- 21 February 2023, 8:00 AM
- Sectors Covered:
- Agriculture, Food & Beverage, Travel and Chemicals
- Helloworld’s (ASX:HLO) 1H23 result beat our forecast. The strength of its EBITDA margin was the key highlight and is already above pre-COVID levels. TTV and profitability continues to improve quarter on quarter highlighting that travel demand continues to recover in ANZ despite the current macroeconomic uncertainty.
- HLO upgraded its FY23 EBITDA guidance by 25% at the midpoint. We have revised our forecasts and note management’s track record of beating guidance.
- Backing out its investment in CTD from its EV, HLO is materially undervalued, trading on a recovery year EV/EBITDA multiple of only 3.1x. Add maintained.
1H23 result was much better than we expected
TTV rose 209% to A$1.21bn, revenue increased 151% to A$73.2m, underlying EBITDA was A$15.6m vs MorgansF of A$12.6m and underlying NPAT was A$3.9m vs MorgansF of A$1.5m. An interim dividend of 2.0cps FF was declared.
P&L was a strong beat; Cashflow was weak due to seasonal factors
1H23 was the first full six month period post the sale of the Corporate business.
The EBITDA margin was impressive at 21.4% and was higher than pre-COVID (FY19 was 20.6%) and reflects the efficiency benefits of its new technology and structural cost out. EBITDA consisted of A$12.1m in Australia (A$4.6m 1Q), A$2.3m in New Zealand (A$0.5m 1Q), A$0.4m for Fiji (A$0.2m 1Q) and A$0.8m from Transport, Logistics and Warehousing.
In line with seasonal trends, HLO reported an operating cash outflow of A$19.1m vs MorgansF of A$12.4m. HLO attributed the outflow to the timing of its BSP payments and the build-up in working capital during the recovery. HLO should report strong cashflow in the 2H, with its accrued revenue (overrides) balance at Dec-22 of A$27.9m vs A$11.5m at Jun-22.
As at Dec-22, HLO was in a strong net cash position of A$55.6m. HLO’s shareholding in CTD is now on the balance sheet as an investment at A$53.9m.
FY23 EBITDA guidance has been upgraded
HLO upgraded its FY23 EBITDA guidance to A$28-32m, or 23-27% ahead of previous guidance of A$22-26m. This implies 2H23 EBITDA in the range of A$12.4- 16.4m which could prove conservative. We note management’s track record of beating guidance.
HLO expects that bookings volumes will continue to increase as airfares normalise in line with the return of airline capacity, tour operators continue to onboard staff to meet demand and confidence levels amongst the travelling public return to pre-COVID levels.
Strong demand for inbound travel into ANZ has seen Inbound and Wholesale return to pre-COVID levels. HLO sees further opportunities for these businesses with the China market reopening and expects strong growth into the foreseeable future.
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. In addition, HLO’s earnings will benefit from its new Freight business. We forecast this new segment to contribute A$5.0m of EBITDA in FY25.
We upgrade our forecasts
Given upgraded guidance, we have raised our FY23 EBITDA forecast by 28.2% to A$31.2m, which is at the top end of its guidance range.
We have also increased our FY24/25 EBITDA forecasts by 7.2%/8.5% reflecting the stronger underlying travel recovery and the addition of the new Freight earnings.
We continue to expect HLO to fully recover in FY25 with EBITDA of A$62.9m (post AASB 16).
Add rating; next catalyst is 3Q23 result in April
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 3.1x.
However, it is a late-cycle COVID recovery story given its exposure to inbound and outbound travel to and from ANZ and significant exposure to Cruise and therefore investors need to be patient.
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