LONDON (ShareCast) - (Sharecast News) - House broker Peel Hunt cut the price target on shares of On The Beach on Monday to 400p from 550p following the company's profit warning at the end of last week.
The broker, which left its 'buy' rating unchanged, said that while forecasting is "clearly highly uncertain", it has modelled the impact of a 50% reduction in revenue relative to its prior forecasts for three months and a slow recovery thereafter.

On this basis, it cut its FY20 earnings per share forecast by 43% to 13.4p and its FY21 EPS estimate by 16% to 25.3p.

"The range of possibilities includes an only short-lived dip in bookings and that we restore our forecasts to close to the previous level and a much more severe decline triggered, perhaps, by governmental limits on travel," it said.

"We expect to revisit forecasts in the near term as the situation develops."

The broker said its new target price is based on a price-to-earnings ratio of 30x for the current year FY20, for which it is expecting a deep trough in profits, followed by a rapid recovery, and a PE of 16x for FY21E, which should be a year when the business is "demonstrably well on the way to recovery in a materially less competitive market".

At 1405 GMT, the shares were down 8.8% at 294.80p.

On The Beach warned on Friday that full-year results would be below current market expectations due to the coronavirus outbreak.

The online retailer of beach holidays said it had experienced a "small but noticeable" reduction in demand for summer 2020 travel following reports of coronavirus cases in early February. However, the drop in demand accelerated "significantly" following the increase in cases reported in Europe, particularly the spread of the virus to Tenerife, it said.

"Whilst this reduction in demand has led to a natural reduction in marketing spend, the board does not now expect the group to achieve payback in the current financial year on its previously outlined strategic marketing investment," it said.

Amid expectations that the spread of the virus will cause significant disruption for a period of time, the company said it anticipated that results for the year to 30 September 2020 would be below current market expectations.

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