Barclays and UBS initiate bullish coverage on HBX Group, citing strong growth

Investing.com -- HBX Group International (BME:HBX), a newly listed B2B travel technology company, has received an "overweight" rating from Barclays (LON:BARC) and a "buy" rating from UBS, both flagging its growth potential and strong financial fundamentals. 

Barclays has set a price target of €14.30, representing a 30.2% upside from its last traded price of €10.98, while UBS has assigned a €14.25 target, citing an attractive valuation at 5.5x 2026E EV/EBITDA and a 13.2% equity free cash flow yield.

As the largest independent B2B platform in the hotel sector, HBX facilitates inventory distribution for accommodation, mobility, and experiences, connecting hotels with distributors such as online travel agencies, tour operators, and airlines. 

The company has also diversified into fintech services and Hoteltech, a white-label product that helps smaller hotels manage online bookings and loyalty programs. Barclays sees HBX well-positioned for growth, emphasizing its leadership in the market and ability to gain share, with the company forecasting transaction volume growth at twice the market rate. 

UBS also flags HBX’s role as a "key cog in hospitality’s flywheel," estimating the company holds a 15% share of the global bedbank market, which is growing at 6% annually. 

HBX reported €7.7 billion in total transaction volume for FY24, significantly outpacing Web Travel Group’s €2.5 billion. UBS projects a 10% compound annual growth rate in transaction volume through FY29, which would imply HBX increasing its market share to 19%.

HBX maintains strong take rates and high margins, reporting a 9.0% take rate in FY24, which exceeds that of listed competitors. EBITDA margins stood at 57%, with further room for expansion. 

Barclays notes that with a few quarters of solid execution and improved liquidity over time, the stock has the potential to re-rate. 

UBS analysts anticipate that HBX’s EBITDA margin could expand into the low 60s in the medium term, estimating a 60.7% margin by 2029. The company is also expected to reach a net cash position by FY27, providing flexibility for strategic investments or shareholder returns.

Despite its strengths, HBX faces certain risks. The take rate remains a crucial factor, with Barclays cautioning that a 50 basis point movement in take rate could impact EBITDA by approximately 10% and net income by 13% in FY25E, all else equal. UBS analysts project a modest decline in take rates over time, forecasting 8.4% by 2029, but note that HBX’s scale, technology investments, and direct hotel partnerships offer competitive advantages. Additionally, Web Travel Group recently issued a profit warning, raising industry concerns. 

However, Barclays reassures that HBX has not encountered the same issues, while UBS points to HBX’s lower reliance on third-party inventory and its ability to leverage data from more than five billion daily searches as differentiating factors. 

Other risks include competition from online travel agencies with direct supplier integrations and the cyclical nature of the travel industry, which could impact revenue consistency.

Barclays and UBS both emphasize that HBX’s performance in its initial quarters as a public company will be crucial in determining its re-rating potential. 

The upcoming 1H FY25 results on May 14, and the Q3 trading statement on July 30, will be key indicators of whether the company can meet its forecasts and reinforce investor confidence. 

Additionally, potential liquidity events or further equity placements could influence market sentiment. 

Barclays believes the fundamental catalyst for a re-rating lies in HBX delivering on its financial projections early on, demonstrating management’s ability to balance volume growth with take rate optimization, while UBS sees the company’s technology modernization efforts and expansion into fintech as additional drivers of long-term value.