Positive first-half results and an analyst upgrade are reigniting investors’ interest in the online package holiday provider On The Beach (OTB) and we think there is a big value opportunity here for investors to take advantage of.
Based on consensus forecasts the company trades on just 8.6 times September 2025 forecast earnings and after a hiatus imposed by the pandemic the company is returning to meaningful dividend payments – yielding 2.5% for the same 12-month period.
The 16.8p the company is forecast to generate in the year to 30 September 2025 would represent a return to the level achieved in 2018 and would be within striking distance of the 17.5p pre-pandemic high posted in 2019.
WHAT THE BUSINESS DOES
On The Beach sells beach holidays online and earns a commission on these sales – it has no physical sites and does not own its own planes – and this means it does not need to employ lots of capital to grow. Its main costs lie in marketing. The company also sells holidays offline through third-party travel agents.
As Berenberg analyst Benjamin Sandland-Taylor observes: ‘The wider business operates across the value, premium and long-haul segments with differing market positions among each. In value for example, OTB estimates that it has a 22% market share of the segment’s circa five million passengers. In the premium segment, which the company estimates to be a similar size in terms of passenger numbers, OTB has a circa 5% share. Long-haul encompasses three million passengers, with OTB having a 2% share.’
It’s in these two latter areas which On The Beach sees scope to grow. In the middle of May, On The Beach reported a 11% increase in group revenue to £80.8 million for the six months to 31 March 2024.
STRONG DEMAND
Passenger bookings during this period were up 15% (and there was an increase in the average value of holidays sold) highlighting the fact that people are still prioritising holiday getaways despite the cost-of-living crisis.
TTV (total transaction value) for the period was £597.8 million, up 22% year-on-year. Berenberg’s Sandland-Taylor believes that the online package holiday provider has ‘potential for further market share growth’ in the long-haul and premium holiday markets.
He adds: ‘We anticipate consumers’ appetite for travel to remain healthy – with positive comments on forward-looking bookings from On The Beach as well as across the wider travel space.’
CEO Shaun Morton tells Shares: ‘Destinations like Turkey, Greece, Southern Spain, Canaries, North Africa are all proving popular destinations for customers, and we have chosen to expand on offering to these countries.’
As well as focusing on long haul and diversifying into the premium areas, the online package holiday provider has been investing in brand proposition, technology, and customer experience. Customer ‘perks’ being offered to drive loyalty include lounge access, free mobile data and fast track security.
RYANAIR AGREEMENT
On The Beach’s agreement with Michael O’Leary’s low-budget airline Ryanair (RYAAY:NASDAQ) has enabled the company to offer its customers flexible payment plans and ATOL protection under the terms of the long-term distribution deal signed in February this year.
Ryanair’s Dara Brady said at the time: ‘On The Beach customers can now book Ryanair flights, seats, and bags as part of their holiday package with the guarantee that they will have full price transparency of Ryanair products (without any overcharges), and that they will receive any information regarding their flight directly from Ryanair as well as having direct access to their booking through their myRyanair account.’
Shaun Morton adds: ‘The Ryanair agreement solves a long-term challenge. We now have secure seat supply with one of the biggest airlines in Europe. The way the partnership with Ryanair works is through direct technology link and it is also going to enable us to be more efficient in terms of how we operate, and it should improve the customer experience as well.’
VALUE MARKET CHALLENGES
One area of risk for the online package holiday provider is the value market segment of the business – or three-star holiday market, which Morton told Shares has seen ‘constrained demand,’ as people’s spending priorities have changed post-pandemic and during the cost-of-living crisis.
In the company’s last trading update, On The Beach said the value market only reported 1% TTV growth year-on-year.
These articles are provided by Shares magazine which is published by AJ Bell Media, a part of AJ Bell. Shares is not written by AJ Bell.
Shares is provided for your general information and use and is not a personal recommendation to invest. It is not intended to be relied upon by you in making or not making any investment decisions. The investments referred to in these articles will not be suitable for all investors. If in doubt please seek appropriate independent financial advice.
Investors acting on the information in these articles do so at their own risk and AJ Bell Media and its staff do not accept liability for losses suffered by investors as a result of their investment decisions.
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