TBO Tek stock jumps 11% to hit new all-time high after Goldman Sachs initiates coverage with 'buy' rating

The share price of TBO Tek, a global B2B travel distribution platform, jumped 11% in today's intraday trade to hit a new lifetime high of ₹1,764 apiece after global brokerage firm Goldman Sachs initiated coverage on the stock with a target price of ₹1,970 apiece. The brokerage is constructive on the stock for the following three reasons:

Large and fragmented TAM provides a long growth runway: TBO has a less than 0.1% share of US$1.9 trillion in global travel TAM (as of CY24E), a segment where there are only a few scaled players. The brokerage anticipates TBO's revenues to grow at a 21% CAGR from FY24 to FY30, driven by its strategy of consolidating both supply and demand through mergers and acquisitions.

The brokerage highlights that approximately 75% of TBO's revenues come from hotels, a segment characterised by high supplier fragmentation where platforms like TBO play a crucial role in aggregating demand.

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Furthermore, Goldman Sachs views TBO's feet-on-street sales model as advantageous, providing visibility into its ability to onboard buyers and creating demand for suppliers. It also sees TBO benefiting from the 'Affluent India' theme, with an expected 15% CAGR translating to about 40 million new outbound travelers from India by FY30.

Goldman Sachs notes that 75% of TBO's GTV originates from the Middle East, India, and Latin America in FY24. These regions, according to the brokerage, are expected to be the fastest-growing offline travel markets in the coming years.

B2B travel platforms like TBO have shown faster growth compared to their B2C counterparts, a trend it expects to continue for the foreseeable future.

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Low competitive intensity with scale-driving network effects: The world’s largest travel aggregators have less than a 10% share of the global travel industry, with the top 10 players accounting for less than 30% of the market.

This is despite travel being one of the most mature internet verticals globally. TBO has 1 million+ hotels on its platform (c.25% of global supply), one of the highest among peers; more supply helps onboard more demand (agents), which in turn helps bring more hotels on the platform.

This network effect becomes stronger over time and is difficult to break into with a new entrant. The brokerage notes that most large global OTAs already have a B2B arm that sells to travel agents.

Given the global and fragmented nature of the B2B travel industry, competitive intensity is generally lower compared to B2C verticals, and the brokerage also sees low regulatory risks given the high level of revenue diversification.

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Strong FCF generation, clean balance sheet: In terms of financial strength, Goldman Sachs highlights TBO's strong Free Cash Flow (FCF) generation and clean balance sheet. The brokerage forecasts an average annual margin expansion of 170 bps until FY30. It sees TBO as a steady earnings compounder and forecasts a 30% to 33% CAGR in EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) and net income from FY24 to FY30.

TBO has a negative working capital cycle, with an asset-light balance sheet and an FCF to net income that has consistently been more than 100%, a trend the brokerage expects to sustain. It anticipates TBO to generate approximately US$150 million in cumulative FCF from FY25E to FY27E.

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Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.