Webjet: Big northern hemisphere summer
About the author:
- Author name:
- By Belinda Moore
- Job title:
- Senior Analyst
- Date posted:
- 20 May 2022, 9:30 AM
- Sectors Covered:
- Agriculture, Food & Beverage, Travel and Chemicals
- FY22 was a tough year given COVID travel restrictions. However Webjet's (ASX:WEB) result was stronger than expected with TTV, revenue and cashflow beating our forecasts.
- The 1Q23 bookings, TTV and EBITDA are all currently tracking well head of 4Q22. May is currently tracking ahead of April, which was WEB’s most profitable month since March 2020, with all business segments profitable. WEB continues to target a return to pre-COVID booking levels in the 2H23.
- In our view, WEB hasn’t wasted a crisis and will come out of COVID with a materially lower cost base, consolidated systems and a large business in the US. We maintain an Add rating on WEB with a (login to view) price target.
FY22 result – a return to profitability in the 2H22
TTV rose 216.6% on the pcp, revenue was up 465.6% and WEB reported an underlying EBITDA loss of A$15.0m compared to A$118.2m in the pcp. Underlying NLATA was A$38.4m.
Strong positive operating cashflow was the highlight
In FY22, the Webjet OTA was EBITDA positive for the period despite travel restrictions and WebBeds was modestly EBITDA positive in the 2H22 reflecting a strong domestic leisure recovery in North America and intra-Europe.
As expected, GoSee remained unprofitable for the period given its exposure to international inbound travel to ANZ which was largely non-existent in FY22.
The continued recovery of WebBeds TTV saw WEB report strong operating cashflow with an average cash surplus of A$4m per month given it was generating positive working capital. Importantly, WEB finished the year in a strong net cash position following the second convertible note offer and has plenty of liquidity.
Strong start to 1H23; expecting a full recovery in bookings in 2H23
WEB said its 1Q23 bookings, TTV and EBITDA are all currently tracking well ahead of 4Q22. April was its most profitable month since March 2020, with all business segments profitable. WEB expects May to significantly exceed April.
As at May, Webjet OTA bookings are tracking at 80% compared to 2019 levels. Its domestic bookings are forecast to return to pre-COVID levels in 1H23 given the strong domestic travel recovery with all state restrictions and testing requirements gone.
WebBeds TTV in May is tracking above pre-COVID levels with 14 out of its top 25 markets trading at or above pre-COVID booking volumes. GoSee May TTV is tracking at ~75% of pre-pandemic levels. WEB expects the group to return to pre-COVID booking volumes by the 2H23.
WEB is expecting a robust northern hemisphere summer. Given the booking window has shortened from 8 weeks to less than 3 weeks, WEB has limited visibility over its forward bookings. However it did say that it expects month on month growth in its WebBeds business from April through to July.
A clearer trading update on the northern hemisphere summer holiday period is likely at WEB’s AGM on 31 August.
WEB reiterated that its cost reduction initiatives will reduce its cost base by 20% across once the business returns to scale. The company also continues to have aggressive market share targets for each of business units.
We downgrade our FY23/24 EBITDA forecasts
We have downgraded our FY23/24 EBITDA forecasts due to Webjet OTA’s TTV margin being negatively impacted by reduced international airline commissions, losses from WEB’s technology investments in Trip Ninja and ROOMDEX, a more conservative recovery from GoSee and a slower role out of its consolidated IT systems.
Given its cost out targets, we still forecast WEB’s FY24 EBITDA to exceed CY19 levels. The downgrades at NPAT level are materially less due to lower interest expense following WEB reclassifying non-cash amortisation from the convertible notes to an abnormal item.
Following forecast downgrades, our blended valuation has fallen to (login to view).
Based on our forecasts, WEB is trading on an FY24 recovery year PE of 19.5x, which is at a discount to its five-year average PE (pre-COVID) of 20.6x. We maintain an Add rating on WEB.
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