Helloworld confirms guidance on back of travel sector’s recovery story

Buoyed by an 87% return to pre-covid domestic passenger numbers in July, travel business Helloworld’s (ASX: HLO) September quarter update today reported a 352% increase total transaction value (TTV) to $561m, versus the previous quarter.

Earnings (EBITDA) for the September quarter were $5.3m compared with an earnings loss of $3.3m in the first quarter FY22, while revenue at $29.3m was up 174%.

Commenting on today’s update CEO Andrew Burnes told the market to expect a continued recovery in FY23 and guided to underlying earnings (EBITDA) in the range of $22.0m to $26.0m.

Other highlights within today’s September quarter update include:

• Wholesale/inbound: TTV was up 200% on the same quarter in the prior year in Australia. The Australian destination management business is also up 829% on the previous period due to the reopening of international borders.

• Retail A&NZ: With travellers taking advantage of the first northern hemisphere summer without border restrictions, TTV was up 395% for the quarter in Australia and 288% in NZ. Cruise is also expected to return strongly as more capacity arrives in Australian waters in the coming months.

• Entertainment Logistix (formerly Show Travel): The concert, theatre and event logistics business has seen significant improvement since the removal of restrictions, with gross revenues up 38% on the previous period.

The group said the NZ and cruise tourism markets are recovering over the second half of 2022.

What happened at the full year?

The company reported a return to profitability in the fourth quarter of FY22, with a statutory FY22 profit of $90.5m after tax and a net loss of $28.8m.

Total revenue for Helloworld’s continuing operations grew by 20.5% to $63.3m, and its TTV rose 140% to $1.01bn.

The board declared a 10c final dividend.

With the exception of some minor bank guarantees, mainly to commercial landlords, at 30 June 2022 Helloworld had no external debt.

Outlook

The company expects to benefit from a continued uptick in International and domestic travel as Travellers book with longer lead times.

While IATA notes that international passenger numbers were still only at 68% of pre-covid levels in July, domestic passenger numbers are expected to pass pre-covid levels in 2023.

Burnes also advised investors that Helloworld is now in an excellent position – with a strong balance sheet, no borrowing, cash reserves and substantial liquid assets - in relation to potential future acquisitions and/or possible distributions to shareholders through various mechanisms.

What brokers think

Helloworld’s share price is down around -30% over one year but has been on an uptrend since late September.

Consensus on the stock is Moderate Buy.

Based on Morningstar’s fair value of $3.30 the stock appears to be undervalued.

Based on the two brokers that cover Helloworld (as reported on by FN Arena) the stock is currently trading with 22% upside to the target price of $2.48.

FY23 earnings guidance by Helloworld far exceeded Ord Minnett's expectations, however after factoring in changed valuations the broker’s target price lowers to $2.15 from $2.45.

The Hold rating is unchanged, the broker forecasts a full year FY23 dividend of 4.00 cents and EPS of minus -0.90 cents.

Following Helloworld’s higher-than-expected FY23 earnings (EBITDA) guidance, Morgans concludes that the company is materially undervalued and retains its Add rating and raises the target to $2.82 from $2.72.

Neither broker has updated since 31/08/22.

Helloworld Travel's share price was up around 0.50% in late morning trade.