Webjet: Thomas Cook finally loses the battle

About the author:

Author name:

By Belinda Moore

Job title:

Senior Analyst

Date posted:

24 September 2019, 12:25 PM

Sectors Covered:

Agriculture, Food & Beverage, Travel and Chemicals

• Thomas Cook (TC), a customer of WEB's WebBeds B2B business, has entered into Compulsory Liquidation.
• WEB expects TC's collapse will reduce its FY20 EBITDA by up to A$7m. TC also owes WEB EUR$27m (~A$44m) in unpaid receivables. The >3,000 direct hotel contracts acquired from TC remain under WEB's ownership and are available for sale to all WebBeds customers.
• We have removed TC's incremental EBITDA contribution from our forecasts and have reviewed our D&A assumptions which has resulted in material downgrades.
• We maintain a Hold rating with a new price target (Morgans clients can login to view detailed reports and price targets).

Thomas Cook enters Compulsory Liquidation 

Thomas Cook (TC), a customer of the WebBeds B2B business, has entered into Compulsory Liquidation. WEB said TC's collapse will reduce its FY20 TTV by A$150-200m and EBITDA by up to A$7m (worse than expected). WEB also noted it had EUR$27m (~A$44m) in unpaid receivables exposure owed to the company from TC. Management said the impairment of any unpaid receivables will be reported below the line and is not expected to have a material adverse impact on the company's liquidity. As at Jun-19, WEB's gearing level was comfortable with FY19A net/EBITDA at 0.2x. The extent of the unpaid receivables attributed to TC was materially greater than expected.

No impact on acquired hotel contracts

WEB reiterated there will be no impact on the >3,000 direct hotel contracts it acquired from TC in August 2016. These are owned by WebBeds and are available for sale to all WebBeds customers. Management highlighted that most of these contracts are currently sold at full margin to non-TC customers and have been a key driver of profit growth for the European business over the last three years.

We remove incremental TC EBITDA from our forecasts

While the costs associated with integrating the TC contracts have been embedded in the broader WebBeds business, we had assumed an incremental improvement in EBITDA as the agreement with TC shifted to a volume based earnings model from 1 June 2019. WEB said WebBeds TTV is up >50% for the first 10 weeks of trading YTD, in line with the rate of growth experienced over its first six weeks (provided at its August result). However, we note the pcp did not include the DOTW acquisition. No detail was provided on the B2C business and WEB will provide FY20 group EBITDA guidance at its AGM on 20 November. In line with WEB's guidance, we have lowered our WebBeds EBITDA forecasts by A$7m across the forecast period. However given WebBeds organic growth is stronger than expected, we have increased our organic growth assumptions. We have also increased our D&A and net interest forecasts. This has resulted in NPATA downgrades of 11.0%/11.7%/12.8% over FY20/21/22.

Investment view – Hold rating

The market has questioned the agreement with TC since its announcement in August 2016 and TC's reported liquidity issues have weighed on the stock recently. We maintain a Hold rating with a revised price target (Morgans clients can login to view detailed reports and price targets). We are cognisant B2B growth has been acquisition led (and more have been flagged) and are looking for further signs B2C is stabilising.

More information

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