Hostelworld plans to raise cash as revenue expected to plummet

Hostel booking company Hostelworld expects net revenues this year to fall by 80 per cent as it set out plans to raise money.

In a stockmarket update on Wednesday afternoon, Hostelworld laid out plans to place new ordinary shares of 1 cent each representing up to about 19.9 per cent of the company.

It said the reasons for the placing, which will be run by Davy and Numis Securities, were to materially strengthen its position including its balance sheet, provide essential liquidity and enable it to emerge from the Covid-19 crisis in a “materially stronger position”.

The company set out a base case and a pessimistic case in guiding investors as to how it will fare over the coming years. Its base case assumes a “moderate uptick in bookings” in the second half of this year with a modest recovery in 2021. Net bookings this year are expected to be 25 per cent of what they were last year, rising to 65 per cent in 2021. Net revenue this year, meanwhile, is expected to be 20 per cent of what it was last year rising to 60 per cent in 2021.

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Based on its net revenue of €80.7 million last year, the company is suggesting that that will come in at €16.1 million this year, rising to €52.4 million next year.

For its pessimistic scenario, Hostelworld has factored in a second Covid-19 wave and significant disruption to travel in the first half of next year. As such, it forecasts that revenue would be marginally lower than €16.1 million this year and roughly that again in 2021.

For the base case, Hostelworld also forecasts that operating expenses this year will fall 24 per cent to €5.3 million by the fourth quarter. For both scenarios, the company estimates a monthly cash burn of about €1.9 million.

“While the short-term outlook for the travel industry remains extremely challenging, I remain confident that Hostelworld will emerge from the Covid-19 crisis stronger than before and be able to seize market opportunities when normal travel patterns resume.

"The proposed placing and proposed new banking facilities announced today are expected to materially strengthen Hostelworld's position in an uncertain environment," its chief executive, Gary Morrison, said.

Accelerated bookbuild

The company is offering new shares in the form of a process known as an accelerated bookbuild which involves offering shares in a short time period. Hostelworld said it chose this structure as it minimises cost, time to completion and management distraction “during an important and unprecedented time”.The company has consulted its major institutional shareholders already.

In addition, “certain directors” and members of senior management intend to participate in the placing to contribute “approximately £65,000 in aggregate”.

In a separate stockmarket update, the company said it had agreed terms for a three-year credit facility to provide up to €7 million. It has also agreed terms for a short-term financing facility worth €3.5 million.