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The FTSE SmallCap Index has plunged in latest weeks, together with the remainder of the UK market. And although it steadied earlier this week on hopes the Iran battle will quickly finish, the index remains to be down nearly 10% for the reason that finish of February.
In conditions like this, there’ll inevitably be wheat getting thrown out with the chaff. Canaccord Genuity appears to suppose so, as a result of on 27 March the dealer gave Hostelworld Group (LSE:HSW) a Purchase ranking, with a brand new 205p worth goal.
As I write, this small-cap is 100p, suggesting it may surge 105% over the following 12 months. Whereas such targets will not be predictions, and shares can in the end go anyplace, it does present that Canaccord Genuity believes the market is considerably undervaluing the enterprise.
Why may that be? Let’s take a more in-depth take a look at the inventory, which is at the moment buying and selling near a 52-week low.
Area of interest reserving platform
As a fast reminder, Hostelworld’s a journey reserving web site that’s significantly standard amongst youthful and solo travellers. It has hostel and finances lodge companions in additional than 180 nations, producing 7m web bookings final yr.
With a £124m market-cap, Hostelworld’s nonetheless fairly a small firm, and it took a beating through the pandemic when a lot of the worldwide journey business successfully shut down. One other disruptive incident like it is a key threat.
Nevertheless, for the reason that finish of the pandemic, enterprise has bounced again. Final yr, income was €93.8m, increased than earlier than the outbreak, and adjusted EBITDA was €19.9m.
In the meantime, the agency ended 2025 with web debt of €1.6m, a big enchancment from €13.4m in 2022. So the stability sheet is far stronger now, supporting the reinstatement of a progressive dividend for the primary time since 2019.
Certainly, after falling 20% yr thus far, the inventory’s providing a 3.4% ahead dividend yield. This rises to 4.5% for 2027, primarily based on the most recent forecast.
Social journey pivot
To tell apart itself from different journey reserving apps and deepen its moat, Hostelworld is creating a social community. When somebody books, they get entry to group chats with folks staying in the identical hostel, in addition to link-up occasions (jungle trek, pub crawl, and so forth).
It now has over 3.4m social members, with 16m chat messages despatched between them. Importantly, this social function helps alleviate the largest worry amongst solo travellers: being lonely.
And the essential factor right here for buyers is that social members are reserving round twice as continuously as non-members. In different phrases, they’re more likely to open the Hostelworld app subsequent time they journey as a substitute of looking on Google.
Consequently, advertising and marketing price as a share of income fell to 45% in H2, down from 48% the yr earlier than. If this social community impact reaches a sufficiently big scale, it ought to make Hostelworld extra worthwhile, in addition to maintain travellers loyal to the app.
Supply: Hostelworld.
In November, it opened up the social platform to travellers who don’t e book lodging, including subscription-type income to the combo.
Cheap small-cap
The inventory appears to be like low-cost, buying and selling at simply 7.9 instances ahead earnings. Granted, this isn’t a high-growth share, however that appears respectable worth, particularly when paired with the three%-4% dividend yield.
Wherever round 100p, I feel Hostelworld’s value digging into as an affordable restoration play.
