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Why Webjet Fell 5.6% In Early Trading?

Stuart Lucy

Stuart Lucy is an Investment Specialist at the Australian Stock Report, and has gained exposure to funds management and investment banking throughout his career. He draws on this experience to provide macroeconomic commentary and actionable investment insights to clients. Stuart is responsible for writing reports, is involved in delivering Macrovue webinars and provides general advice to our members on portfolio construction. Stuart currently holds RG146 General and Securities qualifications.

Webjet (ASX: WEB) was hurt badly in trading this morning, falling 5.6% before recovering most of their losses later in the day. The main catalyst was the collapse of Thomas Cook, a British travel company. Thomas Cook was a major business partner and owed Webjet A$43.7m when it collapsed.  Thomas Cook has defaulted on liabilities to customers, saying flights booked through them will not be rescheduled. Customers are paid out first in a bankruptcy, so the fact that customers who booked flights through them have still not been paid back means makes the chance Webjet will recover its debt slim at best.

webjet-linhas-aereas-1
WebBeds Segment Business Model (Credit: Webjet)

A further problem for Webjet is the impact of the collapse on future revenue. The company had expected to obtain $150-200m of transactions from Thomas Cook, so the bankruptcy may lead to another earnings downgrade.

Webjet’s share price already sold off heavily on their FY19 results, when the company announced $27-33m of additional EBITDA for FY20. This was down substantially from prior guidance and was due to reduced TTV expectations from Thomas Cook, in addition to expected cost synergies from growth opportunities across APAC being realised in the prior period. This prices the company on around 23.5x trailing earnings for FY19, positioning the business on an attractive PEG ratio of 0.51. As a PEG of less than one is generally used to demarcate cheap and expensive growth businesses, Webjet looks very attractive by this multiple.

Nevertheless, as past results are not indicative of future performance, it is important to delve deeper into these results. EBITDA grew by $37.2m this year, so the lower end of the $27-33m FY20 guidance for EBITDA growth would represent a sharp slowdown from current growth levels.

Webjet has expanded significantly beyond the firm’s original market of online flight bookings. They also have a strong B2B (business to business) segment called WebBeds, which is less well known amongst retail investors. Nevertheless, it is still a very important part of the company, delivering attractive organic EBITDA growth of 30% and now accounting for around half of the company’s EBITDA. The company is the second largest global B2B player and is growing much faster than the company which is slightly bigger. This business unit will be an important part of Webjet’s strategy going forward, and investors would do well to monitor this segment closely to see if the company will re-rate going forward.

 


 

Disclaimer:

This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)

(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).

This article is provided for informational purpose only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.

ASR has no position in any of the stocks mentioned.

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