On The Beach (OTB) 177p

Gain to date: 37.2%

We originally flagged On The Beach (OTB) at 129p in July 2022 noting the shares were trading at their lowest valuation in the seven years since they had listed. We argued this had created an excellent opportunity to invest in a financially strong and ‘fundamentally sound’ business with good longer-term prospects.

WHAT’S HAPPENED SINCE WE SAID TO BUY?

Initially it looked like we had gone positive too early with the shares. They dropped to 52-week lows below 90p in October. Since then, they have roared back along with a revived travel sector to leave our trade well in the money.

Comments on trading in the interim have been mixed. On 8 December the company announced a return to profit for the 12 months to 30 September 2022 but also warned on 2023 trading and announced that its CEO and founder Simon Cooper would stand down within a year – with chief financial officer Shaun Morton stepping up in his place.

Annual pre-tax profit of £14.1 million compared with the previous year’s £18.4 million loss. This was still some way below 2019’s £34.5 million pre-tax profit.

A trading update on 27 January pointed to bookings having ‘materially increased’ since Christmas with a 68% rise in the total transaction value of holidays sold versus the same period a year ago.

Cooper said the group was ‘significantly increasing’ investment in its brand, technology and customer proposition to capitalise on this momentum and grow its market share, particularly at the premium end.

WHAT SHOULD INVESTORS DO NOW?

Take profits. On The Beach is in a confident mood and there is evidence of resilient demand for holidays despite pressures on household budgets. However, news it is ramping up spending might weigh on profit margins short-term, even though it might have long-term benefits by helping it win greater market share. Liberum says: ‘Capturing market share is expensive and likely to take time.’

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