Given that Hostelworld’s business is all about tapping into the growing trend among millennials for a “social travel experience”, the coronavirus pandemic has clearly not been great for the company. Its description of the market as “challenging and uncertain” is something of an understatement.
Yet the specialist online travel agent is shaping up to emerge from the pandemic as a fitter, stronger business after delivering “significant improvements in marketing capabilities, user experience and inventory competitiveness”.
The key has been sorting out its IT. It has successfully upgraded its technology platform – a must given the penchant for its tech-savvy customers to book on smartphones – to add payment options, including PayNow, Google Pay and Apple Pay.
It now has a significantly faster website, while the search facility for a hostel has been upgraded with algorithms that provide more personalised results. Most of the 17,000 sites on its books bear little relation to the perceptions of a traditional youth hostel and anything that helps customers find the right one for them encourages loyalty.
When Gary Morrison, its chief executive, took up the role in 2018, he found a business that had been losing market share to more generalist rivals such as Booking.com and Expedia, his former employer. Years of underinvestment, inflexible booking policies and doubtful marketing had also taken their toll, so he has had his work cut out.
Hostelworld describes itself as “the leading online hub for social travel”, with over 13 million reviews across more than 17,000 hostels in 179 countries. Its website operates in 19 languages, its mobile app 13.
Yesterday’s full-year numbers are, inevitably, far from pretty, with net booking volumes down by 79 per cent and net revenue down 81 per cent to €15.4 million. On an underlying basis it swung from a profit of €20.5 million to a loss of €17.3 million, although at least this was slightly better than forecast. The net average booking value declined 22 per cent to €9.33 amid increased cancellations and reduced bed prices.
Of course, Hostelworld is far from being the only travel-based company to be hit for six by the pandemic, from airlines and tour operators to hotels and attractions. Yesterday, for example, SSP, the airport and railway caterer, was forced to go cap in hand to shareholders for £475 million of new funds to ensure its survival.
Hostelworld raised €15.2 million last summer through an equity placing that left it with €18.2 million of cash. It strengthened its balance sheet further last month with a new €30 million loan facility.
Shares of the Dublin-based group, which were floated at 185p in November 2015, have almost doubled over the past year to 88p, although that says more about the state of the business Morrison found when he took over than the prospects for a rapid recovery.
Having gone a long way to addressing the core issues, Morrison must now wait for the dismantling of travel restrictions and lockdowns. While the rollout of vaccination programmes across many parts of the world is encouraging, the continuing uncertainty over the timing of the recovery has left Hostelworld unable to provide guidance for the coming year.
With domestic travel the first to return, Hostelworld’s exposure to long-haul is likely to mean a later recovery. Budget accommodation providers are also expected to resort to discounting to kick-start demand, which could act as a drag on the group’s commission-based revenue model.
Advice Hold
Why Doubling of the shares during the pandemic looks optimistic, especially when the “roadmap for growth” has yet to be fully tested”
Ferrexpo
Sometimes there is a cost to doing the right thing (Emily Gosden writes). In August, Tempus said to avoid Ferrexpo, the Ukrainian iron ore pellet producer — despite solid half-year results and an increased dividend — because of overwhelming corporate governance concerns.
These relate to Kostyantin Zhevago, who owns 50.3 per cent of Ferrexpo and was chief executive before standing aside in 2019 to focus on fighting an investigation into alleged embezzlement in Ukraine. He denies any wrongdoing.
The full concerns are complex but relate to dealings between Ferrexpo and other organisations with links to Zhevago, including one matter that led to the resignation of its auditor in 2019.
Since August Ferrexpo has continued to perform well operationally, with full-year production up by 7 per cent to 11.2 million tonnes.
Meanwhile, iron ore prices have rallied to almost ten-year highs on strong demand. Ferrexpo did not see the full benefit of this last year due to lower premiums for the pellets it makes, but still reported a 62 per cent rise in pre-tax profit to $748 million and declared a special dividend, taking total dividends for 2020 to 72.6 cents, or almost four times their 2019 levels.
Ferrexpo’s shares rose by 1.4 per cent to 360p yesterday, up a handsome 76 per cent since Tempus recommended avoiding them. While that might appear to leave Tempus in a bit of a hole, now is not the time to stop digging, least of all into Ferrexpo’s accounts.
The results included an update on FC Vorskla, a Zhevago-controlled football club that Ferrexpo sponsors, which made a $17 million loan to another company controlled by Zhevago to fund work on its stadiums. The loan is now being repaid but the accounts still flag risks if it transpires that the sponsorship cash and the loan were “not fully used for the benefit of the football club”.
Ferrexpo has made a number of moves to strengthen its governance over the past year but risks remain. As analysts at Barclays put it, these “make the stock uninvestable for most mainstream investors”.
Advice Avoid
Why Corporate governance remains the concern
