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Expanding Fleet And Wellness Innovations Propel Revenue And Attract High-Value Clients

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WarrenAINot Invested
Based on Analyst Price Targets

Published

September 24 2024

Updated

September 30 2024

Narratives are currently in beta

Key Takeaways

  • Expansion and introduction of high-value services increase customer base and spending, enhancing market presence and margins.
  • Strategic focus on pre-booking and financial stability through debt repayment and dividends aims to boost upfront revenues and investor interest.
  • Reliance on cruise line partnerships, adoption of a cash dividend program, and new service implementation pose risks to revenue and net margins amid economic uncertainties.

Catalysts

About OneSpaWorld Holdings
    Operates health and wellness centers onboard cruise ships and at destination resorts worldwide.
What are the underlying business or industry changes driving this perspective?
  • Expansion in ship count and the opening of new health and wellness centers on new ships, which is likely to drive increased service revenues by broadening the customer base and enhancing the company’s market presence, positively impacting revenue growth.
  • Introduction of higher-value services and products, including new cryotherapy services and LED facial services, designed to augment existing offerings and attract a higher spending clientele, potentially boosting per-customer revenue and overall margins.
  • Enhancements in health and wellness center productivity through technology enhancements, expert staff training, and service menu simplification, expected to increase revenue passenger per day and revenue per staff per day, therefore improving operational efficiency and profitability.
  • Focus on pre-booking revenue which shows passengers who pre-book services spend more, highlighting a strategic push to incentivize pre-booking, aiming to increase upfront revenues and potentially enhance customer lifetime value.
  • Strengthening of the financial position through strategic debt repayments and the adoption of an annual cash dividend program, signaling confidence in sustained cash flow generation and operational stability, potentially attracting interest from income-focused investors and supporting a higher valuation.

Assumptions

How have these above catalysts been quantified?
  • Analysts are assuming OneSpaWorld Holdings's revenue will grow by 9.2% annually over the next 3 years.
  • Analysts assume that profit margins will increase from 6.3% today to 9.0% in 3 years time.
  • Analysts expect earnings to reach $99.1 million (and earnings per share of $0.83) by about September 2027, up from $53.0 million today.
  • In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 28.7x on those 2027 earnings, down from 32.7x today. This future PE is greater than the current PE for the US Consumer Services industry at 19.1x.
  • Analysts expect the number of shares outstanding to grow by 5.24% per year for the next 3 years.
  • To value all of this in today's dollars, we will use a discount rate of 6.2%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?
  • Significant reliance on cruise line partnerships for growth could risk revenue if these partnerships falter or if the cruise industry faces downturns.
  • The adoption of an annual cash dividend program, while highlighting confidence in after-tax free cash flow, could impact the company's ability to reinvest in growth initiatives if not managed alongside other financial commitments such as debt repayment.
  • The introduction of new services and treatments relies heavily on successful implementation and guest uptake, posing a risk to expected revenue increases if these do not meet projections.
  • Increased costs of operations and product costs could pressure net margins, especially if the company is unable to pass these costs onto consumers through higher pricing without affecting demand.
  • The company's growth and earnings projections are contingent on continued post-pandemic recovery and consumer spending on travel and wellness, which could be impacted by economic downturns or shifts in consumer preferences away from cruise travel.

Valuation

How have all the factors above been brought together to estimate a fair value?
  • The analysts have a consensus price target of $19.5 for OneSpaWorld Holdings 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 $22.0, and the most bearish reporting a price target of just $17.0.
  • In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $1.1 billion, earnings will come to $99.1 million, and it would be trading on a PE ratio of 28.7x, assuming you use a discount rate of 6.2%.
  • Given the current share price of $16.56, the analyst's price target of $19.5 is 15.1% 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.

How well do narratives help inform your perspective?

Disclaimer

Warren A.I. is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by Warren A.I. are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that Warren A.I.'s analysis may not factor in the latest price-sensitive company announcements or qualitative material.
Fair Value
US$19.5
15.1% undervalued intrinsic discount
WarrenAI's Fair Value
Future estimation in
PastFuture-200m0200m400m600m800m1b2016201820202022202420262027Revenue US$1.1bEarnings US$99.1m
% p.a.
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Current revenue growth rate
8.86%
Consumer Services revenue growth rate
0.58%
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