Online hostel bookings agent Hostelworld (LON: HSW) had a strong September trading and cash generation is better than expected.
Hostelworld could report a modestly positive EBITDA for 2022, compared with previous expectations of around £1.5m. There is still likely to be a significant underlying pre-tax loss, but it does provide further comfort to investors that there will be a sharp bounce back into profit in 2023.
The value of bookings processed in September was higher than the same month in 2019. All regions are growing. Cancelation rates are in line with expectations.
The focus on social media marketing via its app is paying off and helping to improve margins. Nearly 50% of customers are using the app. Net debt at the end of 2022 should be lower than previously expected.
There will be a further update on strategy at a capital markets day presentation on 10 November.
Trading will undoubtedly be tough over the coming year, but Hostelworld appears to be successfully rebuilding its trading levels and increasing the effectiveness of its marketing.
The share price is up 0.85p to 76.75p, which is equivalent to 12 times the previous earnings expectations of 6.6p a share for 2023. The high operational gearing of the business means that if trading continues to improve then the 2023 forecast could be upgraded.
