Hostelworld shares crash 10% following coronavirus speculation

Hostelworld Group PLC (LON:HSW) have seen their shares crash on Wednesday following speculation over the coronavirus impact.

The hostel booking firm cut its payout as earnings also fell, whilst adding that the ongoing coronavirus issues have caused treading to decline.

Hostelworld said that across 2019, revenue was 1.7% lower from €82.1 million to €80.7 million. Additionally, pretax profit also slumped to €3 million from €6.7 million.

Looking at costs, Hostelworld noted that administrative expenses climbed by 2.4% to €63.4 million from €61.9 million – which will leave a sour taste in the mouths of shareholders.

The firm did pay a full-year dividend of 6.3 euro cents per share – however this saw a massive drop of 54% from 13.8 cents in 2018.

Net bookings also dropped 4.8% o 6.6 million from 7.0 million reported in 2018, but on a slightly better note average booking value rose 2.8% from €11.64 to €11.97.

Gary Morrison, Chief Executive Officer, commented: “Following the group’s return to growth in 2019, I see significant opportunities to build a broader catalogue of experiential travel products beyond hostel accommodation. These types of experiences may include opportunities to study, work or volunteer abroad, with hostel stays featuring as part of an extended itinerary. Our research would also suggest that this market is very fragmented, with many different marketplaces and business models.

With the group’s deep knowledge of experiential travellers built up over 20 years, our trusted brand, and a loyal and relevant customer base, I believe we are uniquely positioned to help both our existing customers and new experiential travellers Meet the World® together with other like-minded travellers. To execute this strategy, the Group has increased its focus on potential M&A opportunities in the past six months and built an extensive pipeline of potential targets.

Overall, the Group sees significant potential for the further deployment of capital to enhance future growth through both organic and inorganic investment opportunities. As a result, the Board has taken the decision to rebase the dividend policy. A rebased progressive dividend with a pay-out of between 20-40% of Adjusted Profit After Tax will enable investment in organic and inorganic opportunities which should see shareholder return increase in the medium to long term.”

Hostelworld speculated over the impact of the coronavirus on future business, adding that trading had been affected.

There was a note that bookings had seen reduction and that its’ full year earnings before interest, tax, depreciation and amortisation could take a bruising between €3 million and €4 million.

Hostelworld commented: “While we entered 2020 with positive momentum, trading since late-January has been challenged by the outbreak of the COVID-19 virus which is having a significant impact on global travel demand, within Asian markets and more recently within the European market. As the Coronavirus has spread from region to region, we have observed a material reduction in bookings and an increase in marketing cost as a percentage of net revenue.

This has been driven by a significant reduction of bookings from free channels, an increase in longer lead time cancellations across all channels and an increase in investment in paid channels to partially offset the bookings decline in free channels. Given that the depth and duration of the virus outbreak is impossible to forecast at this time, we are unable to calibrate its effect for the balance of the year … With continued tight cost control and our strong cash generative characteristics, the Group remains resilient in volatile market conditions.”

Shares in Hostelworld trade at 94p (-10.48%). 4/3/20 11:03BST.

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