Hostel booking platform Hostelworld (HSW) has become the latest victim of the terrorism fears weighing on the travel sector, with lower-than-expected bookings in Europe sending the shares crashing 27% to 188p.

The £246 million cap says trading in the second quarter has been below expectations due to weak bookings for higher-priced European destinations, where recent terrorist attacks are clearly weighing on travellers’ minds.

Europe comprises around 60% of Hostelworld’s bookings and revenue, which means overall group bookings and the average booking value are down on last year.

HOSTELWORLD GROUP - Comparison Line Chart (Rebased to first)

This hasn’t been helped by planned changes to the group’s Hostelbookers product offering, which has resulted in a material reduction in bookings from this channel.

Hostelworld says this year's outturn will depend on a recovery in key European destinations over the summer.

Stockbroker Numis warns Hostelworld’s short booking lead times means there is limited visibility. It has cut its 2016 EBITDA (earnings before interest, tax, depreciation and amortisation) forecast from €26.2 million to €24.1 million.

‘The summer months will be key to the FY16 outcome, but disrupted travel patterns are clearly unhelpful. These are short term issues outside the company’s control,’ says analyst Wyn Ellis.

The good news in the otherwise gloomy trading statement is the group has made further efficiencies in marketing by continued management of cost-per-click. This means marketing investment as a percentage of net revenue will be below the previous guidance of 45% to 50%.

‘Management is making good progress with those elements of the business which it can control (brand, technology and marketing) and, in our view, the hostel segment continues to offer attractive growth opportunities,’ adds Ellis.

We continue to like Hostelworld for its strong cash conversion and attractive 4.4% dividend yield, but like other travel agents the shares could be volatile in the short term. It is currently trading just 3p above its November 2015 IPO price of 185p.

Numis’ target price is 300p, implying 59.6% upside.

Issue Date: 26 May 2016