Shore downgrades On The Beach to 'hold'

(Sharecast News) - Shore Capital downgraded On The Beach on Tuesday to 'buy' from 'hold' as it cited execution risks around new ventures. It said that as OTB seeks to diversify its offering and navigate the late-booking cycle, there has been downward pressure on revenue margins.

"With further moves into new offerings, including the announcement of cruises this month, we reduce our near- and medium-term profit assumptions," the broker said. "This raises the question 'can OTB hit its previously set targets?'."

Shore said it was cutting its top-of-the-range FY26F pre-tax profit forecast from £44.5m to £41.7m, driven by its revenue margin of TTV assumption being revised down from circa 11% to 10%.

"We continue to believe that the group will retain a well-funded balance sheet and note the dividend yield of circa 2%," it said. "Our FY27F figures remain well below management's medium-term ambitions, and we look to review our near/medium-term forecasts alongside the FY25A results on 2 December."

Along with its downgrades and cautious stance on the growth strategy, Shore also noted an ongoing difficult trading backdrop.

"Whilst travel is typically a more robust area, consumer discretionary spending remains weak. Asda's income tracker highlights pressures on lower quintiles, whilst the likes of Barclaycard Consumer have seen downward trends over the past year," it said.

"As such, we also take this opportunity to reduce our recommendation from buy to hold, given execution risk around new ventures and the potential for further disappointment on the current financial run rate versus management targets."

The broker cut its fair value on the stock from 330p to 230p, based on a 5.5x EBITDA multiple, which is broadly in line with the 6x basket of peers average, using FY26 forecasts.

At 0920 GMT, the shares were down 5.7% at 194.17p.