Directors’ Deals: On the Beach boss buys as consumer confidence wanes

Holiday retailer On the Beach has had a tough couple of years, hit by the shutdown of the travel industry during the pandemic and by the disruption that characterised the sector throughout this year. Its weak share price performance reflects this, with the shares having dropped by 65 per cent over the past 12 months. 

In the company’s latest results for the half-year to March 31, revenue boomed by more than 1,100 per cent to £53mn and the company’s pre-tax loss narrowed significantly to £7mn as the business benefited from pent-up holiday demand, despite trading being impacted by the Omicron variant. Management said that it expected a return to profit in the second half of the year, and that summer bookings were more than a fifth higher than pre-pandemic levels. 

But that was back in May, before the cost of living crisis really affected many.

Data provider GfK’s consumer confidence index fell to negative 44 for August, the worst since records began in 1974. It is unclear yet as to what extent this will hit On the Beach’s top line. On the plus side, the company’s biggest (according to broker Numis) seat supplier Ryanair hasn’t fared as badly as others with flight disruption. 

Founder and chief executive Simon Cooper is clearly bullish on the outlook for On the Beach. He picked up just under £2mn-worth of shares in the company on August 19 at 130p a share, through the closely associated Hawksford Trustees Jersey. This takes his holding to 5.6 per cent of total share capital.

Panmure Gordon analyst Alex Chatterton is more reticent about the company’s fortunes. He said in a recent research note that while the shares look cheap compared to their pre-pandemic valuation, “there are structural issues such as its nearest peer Loveholidays now having a similar number of ATOL [Air Travel Organiser’s Licence] passengers and a lack of control over flight supply”. Panmure cut its target price down from 334p to 160p in the note.

 Discounts on offer at AO World

There is an argument to be made that any director purchase of shares through a placing or equity raise should not be considered all that indicative if they’re being picked up at a discount. After all, it’s in their interests to be involved, otherwise their existing holding will be diluted. 

However, a purchase on the scale of that recently made by AO World non-executive Chris Hopkinson still takes some commitment to the cause. 

Hopkinson bought 2mn shares in the online white goods retailer at 43p a share – a discount of around 38 per cent on the closing price in the week preceding the placing announcement in July. The former City analyst now owns 4.37 per cent of the company. 

AO World raised £37.3mn in funding from institutional and retail investors via the placing, which was undertaken to “increase liquidity back to historic levels” after the company embarked on a restructuring that involved the closure of its German business and a rationalisation of UK operations, with a view to saving at least £25mn by 2025.

AO World’s focus has shifted much more keenly towards profitability from growth recently. The company announced “a strategic pivot to focus on cash and profit generation” in mid-August as it revealed a full-year pre-tax loss of £37mn, compared with a profit of £20mn in the prior year.

AO World’s share price has fallen by 82 per cent over the past 12 months, not recently helped by an increasingly tough outlook for retailers. 

Following its results, analysts at Panmure Gordon queried whether AO World’s balance sheet is strong enough to see it through without another raise, given that it burned through about £48mn of cash last year and will incur closure costs related to its German operation this year. Shore Capital suggested Currys or Marks Electrical might be better bets for investors, as both are expected to achieve higher margins over the short term.