Expanding Prime Model Into New Markets Will Strengthen Future Outlook

Key Takeaways

• Expanding the Prime model and its growing subscriber base are key to improving profitability and enhancing long-term revenue growth.
  
• Share buybacks to reduce capital stock aim to boost shareholder value and earnings per share.
  
• The heavy reliance on Prime for growth, potential Ryanair issues, declining basket value, seasonal working capital challenges, and narrow marketing strategy could threaten revenue and margin stability.

Catalysts

Operates as an online travel company in France, northern and southern Europe, and internationally.

• The growth in eDreams ODIGEO's Prime subscribers and the increasing maturity of Prime members are expected to continue driving improvements in cash EBITDA and profit margins, impacting future revenue positively.
  
• The Prime model's ability to offset declines in the non-Prime side of the business indicates improved profitability and higher net margins as more customers transition to the Prime membership.
  
• The new share buyback program aims to reduce capital stock, boosting shareholder value and potentially increasing earnings per share (EPS) by reducing the number of outstanding shares.
  
• Expanding the Prime model into under-penetrated and new markets presents opportunities for significant revenue growth, enhancing the company's long-term financial outlook.
  
• The focus on a stable fixed cost base and increased leverage from existing operations could further improve net margins, driving higher cash EBITDA and sustaining free cash flow growth.

eDreams ODIGEO Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming eDreams ODIGEO's revenue will grow by 10.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.5% today to 11.4% in 3 years time.
• Analysts expect earnings to reach €98.3 million (and earnings per share of €0.82) by about January 2028, up from €35.3 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €142 million in earnings, and the most bearish expecting €81.1 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.7x on those 2028 earnings, down from 28.9x today. This future PE is lower than the current PE for the GB Hospitality industry at 22.8x.
• Analysts expect the number of shares outstanding to grow by 0.27% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.12%, as per the Simply Wall St company report.

eDreams ODIGEO Future Earnings Per Share Growth

Risks

• The company's reliance on the Prime model for growth could be risky as it offsets declines in the non-Prime business. This shift may impact overall revenue stability if the Prime subscriber growth slows or fails to meet targets.
  
• Issues with Ryanair, described as intermittent access to their content, could affect customer renewal and acquisition, particularly impacting revenue from customers primarily interested in Ryanair flights.
  
• The decline in average basket value, if sustained, may affect future revenue growth, as this metric likely reflects consumers spending less or booking cheaper options within the platform.
  
• There's mention of working capital challenges, particularly with seasonal reductions in payables to hoteliers impacting cash flow positively in some quarters. This could influence net margins if not managed effectively.
  
• The company's marketing strategy appears increasingly focused on Prime, potentially neglecting the non-Prime segment. A lack of diversification in target segments might impact future revenue streams as market conditions change.

Valuation

• The analysts have a consensus price target of €9.64 for eDreams ODIGEO based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €11.5, and the most bearish reporting a price target of just €8.3.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €860.5 million, earnings will come to €98.3 million, and it would be trading on a PE ratio of 15.7x, assuming you use a discount rate of 10.1%.
  
• Given the current share price of €8.55, the analyst's price target of €9.64 is 11.3% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.