Webjet: Ready for the recovery
About the author:
- Author name:
- By Belinda Moore
- Job title:
- Senior Analyst
- Date posted:
- 23 May 2021, 2:30 PM
- Sectors Covered:
- Agriculture, Food & Beverage, Travel and Chemicals
- Webjet (ASX:WEB) reported its FY21 result under its new financial year end (31 March from 30 June). Given this period was impacted by COVID-19 travel restrictions and border closures, the company reported a large loss. Webjet OTA and Online Republic are now profitable however WebBeds continues to be impacted in most regions. Importantly, WEB has plenty of liquidity following its recent convertible note offering. It is targeting to structurally reduce its cost base by 20% once scale returns.
- We have revised our forecasts given ongoing border restrictions and limited international travel.
- With WEB trading on an EV not far off pre-COVID-19 levels, we see the stock as fair value and retain a Hold rating with a new price target (login to view).
FY21 - impacted by a full 12 months of COVID; plenty of liquidity
TTV was down 89%, revenue decreased 94% and WEB reported an underlying EBITDA loss of A$118.2m compared to a profit of A$141.6m the pcp. Webjet OTA was the highlight and was EBITDA positive from the 3Q21 onwards and its 4Q EBITDA margin was over 30%.
Cash burn was A$5.5m/month and up from A$4.8/month. The increase reflected the lack of growth from the B2B business due to border restrictions. This meant that the company didn’t get the working capital benefits it was receiving previously when trading improved.
WEB also incurred increased finance costs associated with its convertible note. Following the second notes offering in April of A$250m, WEB’s proforma cash position was A$431m. All term debt (A$87m) has now been extended until November 2023.
April sees bookings improve
WEB said that as markets reopen, its businesses are rebounding quickly.
In April 2021, Webjet OTA Australian domestic bookings were 95% compared to April 2019 levels and Online Republic bookings were 48%. WEB OTA is profitable and Online Republic has just moved through breakeven following the Trans-Tasman bubble, material cost savings and its focus on domestic sales.
In April, WebBeds’s TTV was at 14% of pre-COVID-19 levels, well below breakeven of 45%. However its US business is performing well with TTV at 83% of pre-COVID-19 levels.
WEB said that when the UK allowed travel to resume to Portugal on 17 May, it saw a surge in bookings. It also highlighted that with the US and UK vaccine rollout programs being well advanced, there are indications that travel restrictions will be relaxed heading into the Northern Hemisphere summer holiday season.
We do not view Qantas’s decision to lower front-end commissions paid to travel agents on international tickets as being material to the Webjet OTA. The OTA earns booking fees from customers and back-end overrides from the airlines and these will not be impacted. Also about two-thirds of the OTA’s TTV is domestic travel.
We revise our forecasts
As expected, no FY22 earnings guidance was provided. Due to ongoing travel restrictions, particularly for international travel, we have revised our forecasts. We now expect WebBeds to be modestly unprofitable in FY22.
However, its performance will be dependent on the upcoming northern hemisphere summer holiday season. While we forecast the group to be EBITDA positive in FY22, given the quantum of WEB’s D&A and interest expense, we forecast a net loss.
Given WEB expects it cost base to be 20% lower once the business returns to scale, we forecast its FY24 EBITDA to exceed CY19 levels.
Investment view – Hold and new price target
Trading on an FY24F recovery year PE of 17.8x, we think WEB’s valuation is fair considering the expected protracted recovery in travel markets.
We also note that on a fully diluted basis, including the equity raising (shares on issue +150%) and convertible note issues, WEB is trading not far off its pre-COVID-19 levels. Aggressive market share targets and costs savings have seen our valuation rise (login to view). Hold maintained.
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