Webjet: Raising more capital

About the author:

Belinda Moore
Author name:
By Belinda Moore
Job title:
Senior Analyst
Date posted:
12 April 2021, 5:00 PM
Sectors Covered:
Agriculture, Food & Beverage, Travel and Chemicals

  • Webjet (ASX:WEB) has raised A$250m through convertible notes to pay down term debt, fund the cash payment associated with the previous notes conversion and for general corporate purposes and growth. This is its third capital raising since COVID-19 began.
  • The previous €100m (cA$163m) convertible notes have now converted into equity, increasing shares on issue by 11.7%. We have diluted our forecasts accordingly.
  • The next update from WEB is likely at its FY21 result on 19 May.
  • With WEB trading on an EV slightly above pre COVID-19 levels, we continue to see the stock as fair value and retain a Hold rating and our previous price target (login to view).

New A$250m convertible notes raising

WEB has raised an additional A$250m through a convertible notes offer. The net proceeds of A$246m will be used to repay A$43.3m of term debt, fund potential acquisitions and for capital management and/or general corporate purposes.

Key note terms are:

  • 0.75% pa coupon (paid semi-annually on 12 April and 12 October each year)
  • Maturing 12 April 2026 (5 year term)
  • The initial conversion price is A$6.35 (~39.4m shares)
  • Conversion period from 23 May 2021
  • An investor put option from 12 April 2024

This funding option was chosen given it is low cost, flexible and long dated. The notes will be listed on the Singapore Exchange Securities Trading Limited.

As a result, WEB’s banks have extended half of the remaining term debt to now be due in November 2023 (A$43.4m is due in Nov22 and A$43.4m is due in Nov-23) and have reduced its minimum cash liquidity requirement to A$100m from A$125m previously.

Previous EUR100m of convertible notes have now converted

In connection with this new offering, the issuer extended a conversion invitation to the holders of the first notes offering.

WEB received conversion notices for EUR100m (or 100% uptake) of its existing 2.50% convertible notes which were due in 2027.

Consequently, WEB has issued 39.7m shares (11.7% of issue capital) and will make a cash payment of A$33.3m to these noteholders. The conversion price was A$4.092 ps.

Plenty of liquidity; we dilute our forecasts

Due to lower interest expense our NPAT forecasts have risen. The EPS dilution from the increased shares on issue in FY23 and FY24 is 7.2% and 8.0%.

Post the new notes offer, we forecast WEB to have net cash of A$123.7m in FY22 (vs net debt position of A$48.4m previously).

With its cash burn post working capital inflows down to A$4.8m/month in the 1H21, WEB now has many years of liquidity in a low revenue environment. WEB will report its FY21 result on 19 May under its new 31 March financial year end (was 30 June).

Given this period will be impacted by COVID-19 travel restrictions and border closures, WEB will report a large loss.

Our focus is therefore on its liquidity position and outlook comments for the Webjet OTA (profitable and benefiting from domestic borders being open; TransTasman bubble will also help) and WebBeds (outlook for upcoming northern hemisphere summer holiday period and reiteration of its ‘8/3/5’ target).

Investment view – Hold

While the new notes reduce refinancing risk, lowers its liquidity covenant, further strength the balance sheet by ~A$169m, have a lower interest rate (reduces interest expense by A$2.2m) and have a higher conversion share price, we were surprised by the announcement and it adds further dilution down the track (increases shares on issue by another 10.4%).

Trading on an FY23F PE of 21.5x, we think WEB’s valuation is fair considering the expected protracted recovery in travel markets. We maintain a Hold rating and price target (login to view).

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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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