eDreams - Proof of concept
All,
Please find our unchanged analysis here.
With all the changes to booking behavior currently occurring and considering the large remaining payables balance after a year of pressure, we had become a little concerned if working capital would really flow in as modeled. Failure to do so would have given us grave concerns, but as it stands, the inflow is akin to a proof of concept - theoretically always expected, but now tangible.
- P&L and Cash Flow stayed very close to model. Sales were a few million higher and EBITDA a few million lower as the market shifted to more volume at lower average ticket prices.
Bookings:
- Top 6 markets are flying: While the P&L looks very similar to our forecast, it was actually achieved on significantly better bookings in the top six markets (note the strongly positive and above market trend at e-Dreams), in return for lower average ticket prices. In line with recent comments from Ryanair and other industry players, volume is likely to return before price (it’s a volume industry). As volume could be beating 2019 levels next year, tourism prices are expected to take a year longer.
- The number of bookings has been developing strongly and has been above 2019 levels in the last three months, tendency rising. YTD levels, therefore, lie at -6% below 2019, not as negative as most of the industry. August bookings have spiked, but the high level is unlikely to be maintained as it was mostly driven by last-minute summer tourists, who waited until the last minute to book their trips, owing to the uncertainty surrounding the pandemic.
Market share and Prime:
- Analysts are valuing the Prime subscription service with €20 / share or some €2bn - €2.5bn (the entire business trades at half the value). Now counting 1.5 million members, Prime is the first and by far the largest subscription service in the industry and has grown by 1/3rd or 500 thousand members in the last quarter alone. The subscription platform now accounts for 40% of bookings.
- Note that the way the company promotes its Cash Revenue Margin and Cash Ebitda margins, it pulls performance forward and therefore overstates its growth (while it grows).
- As the company continues to outperform the market (naturally as a fair share is still off-line), it’s already strong market share keeps increasing.
Liquidity:
- The company has drawn its revolver by some €20m, which explains the delta between our projected cash figure and Q1 results.
- Remaining liquidity is now down to a mere €100m undrawn revolver, plus the €40m cash balance. However, banks and shareholders should be standing in line to finance this company if cash is in short supply.
Positioning:
- We retain our small legacy position in the bonds, but in hindsight have clearly sold the equity too early. In light of the rampant growth of the subscription business as well as market share overall, we are reminded of the differing views debt and equity markets took on Douglas earlier in the year.
- Despite the finite liquidity situation, therefore, we will re-visit the equity.
Wolfgang
E: wfelix@sarria.co.uk
T: +44 203 744 7003