Webjet: We’re all going on a summer holiday

About the author:

Belinda Moore
Author name:
By Belinda Moore
Job title:
Senior Analyst
Date posted:
10 May 2022, 9:00 AM
Sectors Covered:
Agriculture, Food & Beverage, Travel and Chemicals

  • Webjet (ASX:WEB) reports its FY22 result on 19 May. Like all travel companies, WEB was impacted by the Omicron variant which caused a wave of cancellations over a ~10- week period. We have revised our forecasts.
  • The focus at this result is WEB’s FY23 outlook commentary and forward bookings for the upcoming Northern Hemisphere summer. Webjet Online Travel Agency (OTA) should benefit from the strong domestic recovery underway (international will lag) and GoSee will benefit from ANZ borders being open to inbound travellers.
  • 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 preview – reports 19 May

No formal FY22 earnings guidance has been provided. However, WEB said in November that 3Q22 was tracking ahead of 2Q22 despite it being a seasonally weaker period.

Result expectations – a year of stop-start travel restrictions due to COVID

While WEB’s earnings are skewed to the 1H given its exposure to the northern hemisphere summer, we forecast a material improvement in EBITDA in the 2H22 vs 1H22 given fewer travel restrictions.

Our previous FY22 forecast was set before the Omicron variant emerged. Like all travel companies, WEB was materially impacted for ~10 weeks from late December to the end of February. We expect that WEB’s 3Q22 was still stronger than its 2Q22 but to a lesser degree than we thought in November.

WEB’s 4Q22 would have been impacted by Omicron despite a strong recovery from late February and March. We expect that both WebBeds and the Webjet OTA were impacted by reduced bookings and cancellations during the key Christmas/New Year holiday period.

GoSee would have been impacted by the closure of Trans-Tasman travel.

After a strong 1H22 operating cashflow result, we expect 2H cashflow has been impacted by lower-than-previously-expected Total Transaction Value (TTV) growth. Despite this, we forecast WEB to finish the year in a strong net cash position.

Outlook expectations – hoping for a big northern hemisphere summer

With its outlook commentary, we will be particularly interested in WebBeds’ forward bookings for the northern hemisphere summer, its key trading period (June-August).

Despite the war, we note that most US and European travel companies are upbeat about demand during this key travel period, albeit the booking window narrowing materially (~2 weeks from 8 weeks pre-COVID).

The recovery in the Middle East is also strong. Asia will clearly lag given China’s zero-COVID policy.

In line with industry feedback, we expect the Webjet OTA saw close to a full domestic recovery in April. However, higher-value international sales will severely trail domestic given reduced airline capacity.

GoSee should benefit from ANZ borders being open to inbound international travellers, although New Zealand’s testing requirements aren’t ideal. It should also benefit from higher selling prices given the shortage of motorhomes and cars.

We expect WEB will reiterate its target to return to pre-COVID booking volumes by the 2H23 and its cost reduction initiatives will reduce its cost base by 20% across the group once the business returns to scale.

Forecast changes

We have downgraded FY22 EBITDA forecast due to Omicron. We forecast 2H22 positive EBITDA of A$0.6m, a big improvement from the 1H22 loss of A$15.9m, resulting in an FY22 EBITDA loss of A$15.3m (consensus is -A$6.8m).

We have also revised our FY23/24 forecasts to reflect subdued trading in Asia given travel restrictions, New Zealand’s delayed reopening and more conservative assumptions on the European summer noting the Ukraine conflict may have some impact on demand, particularly for Eastern Europe.

Investment view

Our blended valuation is unchanged at (login to view).

Based on our forecasts, WEB is trading on an FY24 recovery year PE of 18.3x, 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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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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