On the Beach buys Classic Collection Holidays, reassures on full year

On the Beach announced the acquisition of Classic Collection Holidays for £20m on Thursday, as it said it continues to expect adjusted pre-tax profit for the year to be in line with management's expectations.

The FTSE 250 travel retailer said it expects the deal to be earnings-enhancing in the first full year of ownership. In the year to the end of October 2017, Classic Collection - which packages luxury beach holidays and sells its packages through a network of third party offline travel agencies - reported earnings before interest, taxes, depreciation and amortisation of £2.6m.

Classic Collection employs 124 staff in its Worthing headquarters, who will continue to manage the relationships with travel agents. It is currently owned by its managing director, Nick Munday, its directors and a number of small private shareholders.

On the Beach said the acquisition represents a continuation of its strategy, whilst leveraging the group's capabilities to access the circa 5m short-haul beach holidays that are booked each year offline.

The company will invest to grow Classic Collection's portfolio of luxury holidays and support the business to invest in, build and launch an online booking portal to provide travel agents with access to a portfolio of mainstream beach holiday product under a new brand 'Classic Online'.

The total consideration will be made up of £14.6m in cash on completion, with £2.7m deferred for 12 months post completion and £2.7m in shares.

Chief executive Simon Cooper said: "We are pleased to welcome Nick and the Classic Collection team into the On the Beach family. We are excited about the opportunity to access the circa five million short haul beach customers that book holidays offline each year. Classic Collection has an excellent reputation in the industry and we look forward to working with Nick and the team to expand both of our product offerings."

The company also provided a brief update on trading for the period from 1 April to 15 August. It said the exceptionally hot UK weather and the World Cup have supressed holiday demand, hitting the group's headline revenue growth. However, the weaker demand has driven a significant reduction in its marketing spend, meaning that growth in revenue after marketing costs has remained strong.

"This is further testament to On the Beach's resilient and flexible business model as we have previously demonstrated in similar circumstances. Whilst August and September are important trading months for the group, the board continues to expect that adjusted profit before tax for the financial year will be broadly in line with management expectations."

Numis said the acquisition is "exciting", while current trading is "reassuring".

"OTB shares have fallen by 37% since its interims in May, with expectations, we believe, of a profit warning which today's statement clearly dispels. Today's acquisition demonstrates management's ambition to expand its addressable market leveraging its existing tech capabilities. With the shares trading on 15.9x FY19E price to earnings ratio (circa 15.5x including accretion) we reiterate our 'buy' recommendation.

At 0920 BST, the shares were up 11% higher to 457.26p.