Serko (ASX:SKO): This dark horse amongst ASX travel stocks has big aspirations over the next 5 years
Nick Sundich, October 30, 2024
At first glance, Serko (ASX:SKO) may appear to be just another travel agency stock with its only differentiating traits being that it is headquartered and listed in New Zealand. But any investors with such thoughts may want to give it a second look.
Back when it listed, the company told investors it was for corporate travel agents what Xero is for accountants – and this is not wrong.
Serko is different
Serko focuses on the corporate travel management sector and is not just a booking platform but an expense management platform too. It was founded by Darrin John Grafton and Robert James Shaw in April, 2007, both of whom are still involved today as CEO and CSO (Chief Strategy Officer) respectively and own just over 15% of the company between them. It listed on the NZX in 2014 and joined the ASX in 2018.
Back to the subject of shareholders for a moment, another shareholder in the company is Booking Holdings, the NASDAQ-listed tech giant that runs Booking.com. In late 2019, Booking Holdings bought 4.7% of the company for NZ$17.5m and uses Serko as part of its Booking.com for Business platform. Serko receives a revenue share for the platform. 5 years and 600,000 registered companies later, the partnership was renewed for another half-decade back in April this year and it includes higher tiers for higher incremental volumes for Serko.
Serko made NZ$71.2m in sales, up 78%, during FY24 – the 12 months to March 31, 2024. Although it made an ‘EBITDAF’ loss of $1.6m and a NPAT loss of $15.9m, these represented improvements of 93% and 48% respectively. There were 172,000 active customers on the platform (up 10%) and 2.5m room nights (up 65%). Investors were told to expect $85-92m income and cashflow positivity in FY25. The company closed the period with $80.6m cash in hand.
The next era of growth is coming
Serko is a bigger company than it was a decade ago, but it has been a volatile half-decade with the Corona Crash, the travel recovery and then rapid inflation and competition in the travel sector. But we think this company could be on the cusp of a new era of growth.
Earlier this week, the company revealed unaudited results for the first half of FY25 and these depicted the company was on track. It made NZ$42.7m in revenue, up 18%, positive EBITDAF of $1m and a NPAT loss of $5.1m. Positive free cash flow was achieved, $1.3m which was a $5m improvement from the prior 6 months.
Concurrently, the company revealed an operational update, telling investors it aspired for total income of NZ$250m in FY30 – representing a tripling of income if this was replicated. It also announced a partnership with North American travel technology company Sabre, buying its GetThere platform and thus positioning the company as the second largest online booking tool provider. What’s more is that Serko would only be paying US$12m, and will form a partnership with Serko to bring new capabilities to the industry.
Is this achievable?
Consensus estimates are skeptical, suggesting NZ$167.3m in that year. Nonetheless, analysts do expect growth – that figure would be more than doubling of revenues in 5 years. Moreover, the 7 analysts all expect share price growth. The NZX target price is $3.99 (up from $3.01 right now) while the ASX target price is A$4.23 (up from A$2.46 right now).
Analysts also expect profitability in FY26 – the next financial year. Serko’s P/E of 37.1x may seem expensive, but its EV/EBITDA for that year is just 10.4x and its EV/Sales is 2.5x.
Conclusion
As we have shown, this company has the most promise and growth potential of any ASX travel stock. The only question is can it achieve its lofty growth ambitions, and if not, will shareholders be willing to settle for (slightly) less.
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