What is the stock? 

Helloworld Limited (HLO)

How long have you held the stock? 

A very recent addition to our new Emerging Companies Portfolio, so the position is about two months old.

What do you like about it? 

Helloworld is an integrated travel services company that participates in several key components of the travel industry. They are a travel retailer (Helloworld – formerly known as Harvey World Travel), wholesaler of domestic/international/inbound tour travel products and provider of corporate travel services.

The company had been in serious tumult for several years. Its management and its ownership have undergone significant change as a result and this had the potential to damage the business model and culture irreparably. Install seasoned management, an ethos of operational excellence/fiscal discipline and a favourable travel environment and you have the formula for a great turnaround story.

We like the continuing exposure to inbound tourism strength (especially growth in Chinese and Indian markets), the prospect of material growth in revenue margins, opportunities to increase the cross-sell of wholesale services into the company’s retail channel and the chance to meaningfully grow their share of local corporate travel spend. All areas seemingly passed over by previous management.

How is it better than its competitors?

It is not necessarily better, rather it is a different service offering, starting from a long way back versus incumbent competitors. Its retail channel endured a name change and online competitive challenges from within the group, somewhat disenfranchising its customer base whilst Flight Centre thrived with a well run, disciplined and identifiable offering. Helloworld is now better placed as a retail offering and able to access internal wholesale product more effectively and profitably than ever before. In corporate travel, the company is now demonstrating its bona fides from clients like PWC and the federal government and we expect they will slowly take share from AMEX, Carlson Wagonlit and ASX listed Corporate Travel Mgt.

What do you like about its management? 

Chief Executive, Andrew Burns and his wife Cinzia (also active in the business) collectively own around 37% of the company, so they are seriously aligned with a successful turnaround of the business. To date, Burns has demonstrated an ability to effect change with a sense of urgency. Restoration of morale amongst retail franchisees was a high on the turnaround triage and we believe he has done this. His travel experience has made for a redoubtable leader and his careful selection of replacement senior managers shows good judgement. His quick grasp of what needed to be done has parlayed nicely into results to date and likely in the medium-long term. He and his management team have adapted well to public company life.

What is your target price? 

We don’t set target prices but it is not unrealistic to think that the company could easily be trading on 18x FY18 estimates. Assuming eps of ~ $0.29, that would equate to a $5.22 share price ($3.92 currently).

At what point would you sell it?

When we deem the stock expensive (in terms of PE ratio) versus its forecast three years eps growth profile. Emerging companies are best held for 3-5 years for optimal returns.

How much has it added (subtracted) to your overall portfolio over the last 12 months?

The stock was one of the first purchases our new fund, the Eley Griffiths Group Emerging Companies Fund, made and we are marginally in front to date.

Where do you see the value? 

At 13x FY18 earnings and forecast 25% growth rate for the next three years, we see a well-priced growth counter and that excludes sizable cost and revenue synergies the company is pursuing. Investors need to remember that Helloworld is a turnaround story and the travel industry is inherently cyclical but on our risk/reward assessment Helloworld screens favourably.

Source: ASX. Data as at 10 May, 2017.

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