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Buy into a lucrative adventure

Moneyweek article: Travel has been a temptestuous industry to be involved in in recent years. But one area which is experiencing long-term growth is the 'soft adventure' market. Here are Moneyweek's tips on how to buy into it.

The rise of the internet and low-cost flights has made travel a tempestuous industry to be involved with in recent years. But for firms able to adapt to change, it has also been a lucrative one. The "soft adventure" market in particular is enjoying long-term growth as holidaymakers seek rarer experiences. One firm looking to capitalise on this, says James Quinn in The Daily Telegraph, is Holidaybreak (HBR, 706p). Founded in 1973 to sell camping holidays, Holidaybreak has since diversified into short breaks and adventure holidays. Now it "generates almost half its turnover from hotel breaks, with the bulk of these being theatre trips to London".

But it is the adventure-holiday business, with forward bookings up 12% at the half-year stage, that is most closely aligned with the new trend. As a result, says Michael Jivkov in The Independent, the firm is looking to sell its camping division. With falling profits and capacity, it may not seem an attractive purchase, but there have recently been two other major corporate deals in this sector.  Plus it is highly cash generative. As a result, it is known to have interested at least two venture capitalists, with analysts predicting a final price of anywhere between £100m and £150m.

Selling the camping division will leave Holidaybreak focused on adventure holidays and hotel breaks. The hotel-breaks division is large enough to win it bargain prices at many hotels and it adds value by bundling in extras, such as theatre tickets, which has won it loyal customers. Despite bookings being down year-on-year due to last year's London bombings, they are expected to recover.

It has also expanded into Europe, which is growing faster than the UK.
Holidaybreak is trading on a p/e of 13.6 times this year's earnings followed by 12.3 times next year's. However, it is much more cash generative than these figures would suggest and, as a result, it is expected to pay a dividend of 27.6p this year, followed by 31.9p the year after (a yield of more than 4%). The cash also makes the company attractive to potential buyers. With price targets swirling around the 800p a share mark (18% above current levels), both Panmure Gordon and Altium are buyers; so is The Independent, and so am I.

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