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The global travel market is huge and On The Beach Group (LSE:OTB) is a growth stock seeking to capitalise on this.
During the year ended 30 September 2024 (FY24), the online travel agent reported adjusted earnings per share of 14.1p. By FY27, analysts are forecasting this to increase to 26.6p. If this consensus estimate proves to be correct, it means the stock’s earnings will grow at an average annual rate of 23.6% over the next three financial years. By anyone’s standards, that would be impressive.
Travelling in the right direction
Of course, these forecasts may be wrong. But the group’s recent performance suggests it’s possible for it to achieve this level of growth.
One of its key metrics is the total transaction value (TTV) of holidays booked. This reflects the revenue earned from holidays adjusted for cancellations and refunds. During the six months to 31 March 2025, the group’s TTV was £640.7m. Compared to a year earlier, this was 12.6% higher.
But by keeping a tight control on costs, it was able to increase its adjusted profit before tax (PBT) by 23%.
The group’s medium-term plan is to increase its TTV to £2.5bn, achieve EBITDA (earnings before interest, tax, depreciation, and amortisation) of £100m and report an adjusted PBT of £85m. During FY24, these were £1.16bn, £38m, and £31m, respectively.
Pros and cons
But the market is highly competitive and it’s hard for one travel agent to differentiate itself from another. On The Beach seeks to be different by tailoring its app to suit a customer’s individual preferences. Apparently, this has led to increased repeat bookings and a 27% reduction in calls to its customer service agents. The group is also heavily promoted its perks scheme — “making jollies jollier” — offering free airport lounge access and fast-track security.
A look at the company’s 10-year share price chart shows that the stock can be volatile. According to the Financial Times, it has a beta value of 3.2. A value of one indicates that it generally performs in line with the market as a whole.
However, it has to be remembered that the ‘Covid years’ fall into this period. During much of this time, travel was severely restricted. As a result, the company had to raise over £90m to stay afloat. But since reaching a pandemic low in August 2023, the group’s share price has recovered by more than 225%.
But I’m not convinced that earnings are going to grow at the rate forecast. The company says its investment case relies on offering flexibility on duration, airports, and hotels. But in my experience, most online travel agents provide this level of choice.
Also, it’s a tough market where price is the biggest factor in driving sales. The internet makes it easier for holidaymakers to shop around and, in some cases, removes the need for a travel agent altogether.
And a recent assessment by Which? was brutal. On The Beach placed 22nd in a survey of readers for the best beach/resort package holiday company. The magazine concluded: “With poor ratings for value for money and customer service, you should book with someone else.”
For these reasons, I don’t want to invest.
