market folly

We're posting up notes from Capitalize For Kids 2018 investment conference.  Next up is emerging manager Andrew Iu of Burgundy Asset Management who pitched a long of Hostelword (HSW.L).


Andrew Iu's Capitalize For Kids Presentation: Long Hostelworld

Hostelworld – Cheap, microcap online travel agency (OTA)

Defensible market – EXPE tried to grow their hostel business and failed

Opportunity to grow commission rates in line with Booking

Incremental contribution margin for Hostel operators 70%+, so they can take the rate increaseApp is successful driving engagement, which is reducing dependence on Google, increasing their EBITDA margin over time

9x FCF

Cheap because:

Worries around economic growth (despite being hostels being the lowest cost means of travel)

Revenue slowing and EBITDA falling [this is due to new cancellation policy impacting revenue recognition (but not cash flow), making income statement ugly]

Significant redemptions from their largest shareholder Woodford, leading to price pressure

20% IRR without multiple expansion, coming from dividend yield, take rate expansion, revenue growth, and share gains


Be sure to check out the rest of the presentations from Capitalize For Kids 2018.