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Hostelworld Group (LSE:HSW) is a UK inventory with a mission to “assist travellers discover individuals to hang around with”. As its identify suggests, it specialises in promoting hostel lodging in over 180 international locations.
The inventory first got here to my consideration on 19 June. That was the day on which it introduced a £5m share buyback programme. The group’s share worth closed that day 23.5% increased at 147p.
A distinct story
However yesterday (10 July), the shares tanked 8% after the group launched a disappointing buying and selling replace for the six months to 30 June 2025. Progress seems to have stalled with each web income (€46.7m) and web bookings (3.7m) unchanged from the identical interval in 2024.
After the pullback, the group’s shares now change palms for round 128p. That is roughly 17% decrease than their 52-week excessive.
Low cost and cheerful
As you’ll anticipate from an organization working in a price-conscious market, Hostelworld’s a high-volume, low-margin enterprise.
An indicator of how low-cost its hostel lodging may be is the group’s web common reserving worth (ABV). This fell by 1% throughout the first half of the yr to €13.40. Based on its web site, throughout the first week of August, it’s potential to get a mattress near the centre of Paris for €23 an evening.
Not surprisingly, the enterprise was badly affected by the pandemic. But it surely’s having fun with higher instances now. It has ambitions to develop by means of acquisition. The group’s additionally trying to broaden additional in Latin America and Asia, in style locations for budget-conscious travellers.
Through the second half of the yr, it hopes to renew its dividend. The intention is to return 20%-40% of adjusted revenue after tax to shareholders.
Utilizing final yr’s adjusted EPS of 13.97 euro cents (12.04p) as a information, this might be 2.41p- 4.82p, implying a powerful yield of as much as 3.8%.
Execs and cons
Nevertheless, there are dangers.
Covid-19 reminded us how susceptible the journey business may be to widespread disruption. And there’s nowhere to cover in a low-margin enterprise if issues begin to go unsuitable.
Cyber safety threats are additionally an ever-present threat for any on-line enterprise. Additionally, the sector stays very aggressive.
However what I like most in regards to the firm is its potential to generate money. Throughout 2023-2024 it repaid (web) €38.8m of borrowings. As of 31 December 2024, it reported a web money place of €1.7m.
And its shares are at the moment buying and selling at 10.5 instances historic earnings. In comparison with fellow journey agent, On The Seaside (20.8), that is low-cost. Based on the London Inventory Trade, the sector common is 14.8.
Nevertheless, the important thing query is whether or not the flatlining of bookings is a blip or the primary signal of a extra basic downside.
After all, no person is aware of for positive. However taking a look at June in isolation, each reserving volumes and the group’s ABV elevated. And though European mattress costs are falling barely, that is serving to to spice up demand.
As well as, though not anticipated to be launched till later this yr, Hostelworld says its different progress initiatives are progressing as deliberate.
On this foundation, it sounds as if progress has resumed as soon as extra and that the corporate has an thrilling interval forward. Lengthy-term traders may think about including the inventory — which at the moment trades at a reduction to its friends — to their portfolios.
