Helloworld Travel Limited

HLO Details

Helloworld Travel Limited (ASX: HLO) is a travel-distribution company, which is engaged in delivering international and domestic travel products and services to clients globally.

H1FY21 Results Performance (For the Period Ended 31 December 2020)

The company’s performance during the period was severely impacted due to travel restrictions because of the effect of Covid-19. Resultantly, the company’s revenue decreased by 85.2% YoY. However, the revenue margin increased to 6.8% from 5.6% in H1FY20 partially supported by non-travel related revenues.

Meanwhile, the company’s Underlying EBITDA stood at -$6.5 million while in H1 FY 2020 the figure stood at $48.6 million.

Financial Snapshot (Source: Company Reports)

Key Risks:

The company is exposed to risks like delay in the revival in travel demand and extended international border restrictions. Further, the company is exposed to supplier risk and customer risk.

Outlook

The company stated that restructuring would be enabling the business to offer key deliverables to customers as well as to expand as required when the international borders open up.

Further, the company continues to invest in its product as well as service offerings throughout all the divisions of the business. Meanwhile, HLO highlighted that the pent-up demand for travel in the medium term remains solid and it expects substantial growth in demand for travel in 2022, 2023 and 2024 once the pandemic subsides.

Valuation Methodology: EV/EBITDA Based Relative Valuation (Illustrative)

Stock Recommendation

HLO has delivered 3-month return of ~-16.7%, while in 9 months and 1 year the stock grew by ~+10.2% and ~+51.7%, respectively. The stock has made a 52-week low and high of $1.201 and $3.360, respectively.

We have applied EV/EBITDA based relative valuation (on an illustrative basis) and the target price reflects a rise of low double-digit (in % terms). We have applied a slight premium to EV/EBITDA Multiple (NTM) (Peer Average) considering the restructuring, investment in its product as well as service offerings and improvement in liquidity position. For the purposes of valuation, we have taken peers like Aristocrat Leisure Ltd (ALL.AX), Harvey Norman Holdings Ltd (ASX: HVN), to name a few.

Meanwhile, the liquidity position of the company has improved following the equity raising worth $50.0 million. This has aided the company in providing enough liquidity to meet its operating as well as capital expenditure through to the end of 2022 or longer.

Thus, we give a “Speculative Buy” recommendation on the stock at the current market price of A$2.090 per share on 16^th April 2021.

Note: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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