Webjet: The world is its oyster

Author name:: By Belinda Moore
Job title:: Senior Analyst
Date posted:: 18 November 2022, 7:00 AM
Sectors Covered:: Agriculture, Food & Beverage, Travel and Chemicals

Webjet (ASX:WEB) reported a strong 1H23 result which exceeded expectations. Pleasingly, operating cashflow was materially stronger than expected and has further strengthened its already strong balance sheet.
WebBed’s 1H EBITDA margin of 55.7% gives us confidence in the company’s "8/3/5" target.
Outlook commentary was upbeat, with WebBeds now expected to exceed pre-COVID EBITDA in FY23 and its bookings are currently up over 30% vs pre-COVID levels. We have upgraded our forecasts.
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. With plenty of market share still to win, we maintain an Add rating on WEB.

Event: strong 1H23 result which materially beats expectations

TTV rose 222.3% on the pcp, revenue was up 217.1%, underlying EBITDA was +A$72.5m (A$77.5m in CC) compared to a loss of A$15.9m in the pcp and NPAT was A$32.0m. The pcp was severely impacted by COVID.

WebBeds and strong operating cashflow were the key highlights

During the 1H23, pleasingly, bookings were back at pre-COVID levels, TTV was at 90% and WEB’s cost base was 16% lower, resulting in a group EBITDA margin of 41.3%. WebBeds lead the recovery with EBITDA of A$63.7m (87% of pre-COVID levels). Its EBITDA margin was impressive at 55.7%.

In September, WebBeds was 35% more efficient on a booking per FTE basis compared to pre-COVID. Webjet OTA generated EBITDA of A$21.4m (64% of pre-COVID levels).

Its EBITDA margin was 41.3%, a strong outcome given the business had an EBITDA margin of 43.6% in 1H20 and its higher margin international sales are lagging.

Operating cashflow was A$168m compared to A$32.8m the pcp. This was materially stronger than expected. As WebBeds grows its TTV, it generates positive working capital. Importantly, WEB finished the 1H in a strong net cash position of A$247.8m. Strong cashflow allowed WEB to repay all term debt.

Outlook comments were upbeat; WebBeds will exceed pre-COVID EBITDA

Based on its business unit outlook comments, WEB appears to be targeting underlying EBITDA in FY23 of at least A$117.7m. WebBeds is on track to exceed pre-COVID EBITDA of A$96.3m in FY23. Its 3Q23 bookings and TTV are currently tracking more than 30% ahead of pre-COVID levels.

Webjet OTA 2H23 EBITDA is expected to be consistent with the 1H23, reflecting restricted international airline capacity. However, this assumption could be conservative if international capacity continues to improve. Its 3Q23 International bookings have already accelerated to 72% compared to 59% in the 2Q23.

GoSee 2H23 EBITDA is expected to be in line with the 1H23 given it is heavily reliant on inbound tourism to ANZ and FY23 is a year of investment in transforming this business.

FY24 EBITDA is forecast to exceed pre-COVID of A$157.8m given the business is now more efficient and is increasing its market share. Our forecast is A$174.4m.

We upgrade our forecasts

Given WEB’s stronger than expected result and full year guidance, we have upgraded our FY23 EBITDA forecast by 18.7% to A$120.0m.

The upgrades to our FY23 NPATA are lower than this at 12.9% reflecting WEB’s materially higher D&A guidance, which has been partly offset by lower net interest.

NPATA upgrades to FY24/25 are 9.0%/10.4% respectively.

Investment view

Following forecast revisions, our blended valuation has risen to A$7.20 from A$6.40. Based on our forecasts, WEB is trading on a FY24 recovery year PE of 19.7x, which is at a slight discount to its five-year average PE (pre-COVID) of 20.6x.

With plenty of market share to win over coming years which should underpin a strong earnings growth profile, whilst generating higher margins than pre-COVID and with a much stronger balance sheet, we would argue that WEB now deserves a PE rerating.

We maintain an Add rating on WEB. With less reliance on international airline capacity and China and the fact that management hasn’t wasted a crisis with a stronger business coming out of COVID, WEB is leading the recovery of our travel stocks under coverage.

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