Companies: TVZ   

Through online agencies and specialist tour operations, Travelzest offers exposure to the most attractive and fastest-growing areas of the evolving travel market. Brought to AIM in 2005 by industry luminary Chris Mottershead, the company is forecast to deliver aggressive earnings growth, yet its shares trade on forward multiples of less than ten for this year and next. A rerating is due.

Travelzest is the brainchild of former TUI UK managing director Mottershead. His vision was to build a high-margin and fast-growing yet resilient travel group for the modern holiday market. Budget travellers are now able to buy holidays directly from suppliers, which are ‘dynamically packaged’ to suit their needs, and the internet has proved a godsend for the discerning traveller, who can find the right holiday experience to suit their preferences. Tastes are moving away from the traditional packaged ‘sun, sea and sand’ experience towards specialist holidays. It is in this area that analysts predict the highest growth.

Travelzest operates two business models, with its agency operations relying on volume and cross-selling and its niche tour businesses delivering high margins on smaller volumes. It is this portfolio approach, Mottershead argues, that should increase upside in good times and minimise downside when times get tough.

Recent annual results to October sparkled, revealing a 256 per cent surge in underlying pre-tax profits to £3.2 million on turnover more than doubled to £38.5 million, of which £16.4 million came from online agency operations. Gross margins grew to 53.5 per cent (2006: 37.8 per cent), reflecting improved returns in the tour operations and a powerful performance from itravel2000.com, acquired in October 2006 for £24.5 million and now the biggest business in the group. One of the largest pure online retailers in Canada, a market running counter-cyclical to the UK, itravel2000.com is on course to double profits within three to five years. ‘The Canadian economy is quite strong, so as a business we are not dependent on the UK,’ enthuses Mottershead, adding that ‘there is a great opportunity for us in a Canadian online travel market three to four years behind the UK.’

Tour business acquisitions in 2007 included Tapestry Collection (specialising in Turkey and Crete); Wow House (renting prestigious houses for events); JMB Travel (an opera holidays business); and Cuban holiday specialist Captivating Cuba. Currently selling to the UK market only, Captivating Cuba has strong synergies with itravel2000.com and, with Canadians being the biggest visitors to Cuba, these two acquisitions should generate plenty of organic growth.

Highlights within existing businesses included healthy growth at naturist holidays arm Peng, a 40 per cent profits advance at Best of Morocco (the specialist tours operator best known for being the main agent for an annual foot race through the Sahara) and another record year from founding business VFB, a French cottage concern. Holiday Express, which operates the holiday.co.uk and flight.co.uk sites, is shaping up for an exciting year, having invested heavily in the relaunch of both sites, which should boost levels of business.

This year, house broker Investec, targeting 190p for the shares, sees profits reaching £4.9 million, with earnings increasing 32 per cent to 10.7p, ahead of £5.6 million and 12.1p by October 2009, placing Travelzest on prospective price-to-earnings ratios of 9.1 and 8. While mindful of prevailing economic uncertainty, those multiples look especially low for a business that made operating profits in the first and second half of last year.

‘We now have the foundations of our business all set up,’ surmises Mottershead, ‘and we want to bring in additional acquisitions, and not just in the UK. Canada is positive for us, and the type of customer we see in specialist holidays is older, more affluent and less impacted by interest rates.’

Travelzest	AIM	£9.38m	46.00p	0.50p
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