Shares in Value Logo
Product Review Img Vertical

Date : 26/03/2021

Webjet

ASX :

WEB

Market Cap : $2.01 Billion

Dividend Per Share : $0.09

Dividend Yield : 1.57 %

Buy

52 Week Range : $2.25 - $6.33

Share Price : $5.70

Webjet is supported by strong fundamentals and there is solid upside potential in store as the travel industry recovers progressively. We recommend long-term investors to "Buy"

Company Analysis

Webjet Limited (ASX: WEB) is engaged in the provision of online travel bookings. The Company is in the digital travel business providing services in regional consumer markets, as well as global wholesale markets via the online channel. It operates through the segments, including Business to Consumer Travel (B2C Travel) and Business to Business Travel (B2B Travel). The Company’s B2C division consists of Webjet and Online Republic brands. Webjet is Australia and New Zealand’s online travel agency. The Online Republic specializes in bookings of cars, cruises, and motorhomes. Its B2B division consists of JacTravel, Sunhotels, Lots of Hotels, FIT Ruums and Totalstay. JacTravel is the B2B suppliers of hotel accommodation, offering application program interface (API) connectivity and a travel agent Website. Sunhotels platform provides global accommodation along with a range of ancillary products such as transfers and excursions.

Webjet’s revenue segment is heavily reliant on 2 markets – Australia and Dubai. Their presence in Dubai has more than tripled in the past 2 years prior to the pandemic. Dubai, a country very reliant on travel for business and pleasure has had quite liberal travel restrictions during the pandemic compared to other countries that Webjet operates in.

We all know how adversely the entire travel industry has been impacted due to the pandemic, Webjet included. In this report, we shall hence look at the future potential of Webjet keeping in mind the impact suffered.

Webjet on the recovery path fuelled by new revenue opportunities

The travel industry has been hard hit by the COVID-19 with travel restrictions that significantly disrupted the industry’s operations and performance, particularly during H2FY20. However, Webjet has acted and has presented a transformation strategic plan to grasp the huge opportunity in the sector ahead of a reopening of borders and economic recovery ahead of FY22. Webjet share prices have reacted accordingly and is pushing toward the positive territory despite a challenging FY20 and FY21. The company’s transformation strategy update puts the spotlight on Webjet’s WebBeds business segment in a post-COVID-19 world. Prior to Covid19, WebBeds was the 2nd largest global B2B provider in the travel industry.


Source: Webjet

The company highlighted the significant global opportunity, stating that the pre-COVID global accommodation market had a value of more than A$ 800 billion in total transaction value. Of this, WebBeds has captured about 4% of the market share. Looking forward to FY21 and beyond, and on the return to normalcy, we believe Webjet will remain a critical distribution channel supporting the travel industry’s recovery. Furthermore, we think that as the travel industry picks up, the company will be able to take advantage of changing travel patterns, expand into new regions, and emerge as the leader in the global B2B provider. As for the North American region, Webjet has been underrepresented with its WebBeds business despite being the largest destination within its network. With only 1% market penetration in North America, Webjet plans to leverage new opportunities such as targeting new market segments and expanding contracted inventory in key cities. On the other hand, Europe represents an essential region with a significant number of independent hotels. Webjet is well-established in the region and is intended to increase its footprint across Eastern Europe to tackle a A$ 26 billion B2B market opportunity. COVID-19 has disrupted the APAC region tourism industry. Pre-COVID, the APAC region was very challenging with fierce competition in the domestic market that makes any entry into this crowded space quite difficult. The APAC region was on track to be the largest region by booking volume for Webjet before the pandemic. We believe that the APAC region presents a huge potential to deliver the most significant growth post-COVID. Webjet has shown its intention to capture on the post-COVID new opportunities in the region, with entry into areas of the domestic market space which were once impenetrable.

Unprecedented disruption in the travel industry caused by COVID-19 affected Webjet’s FY20 financial and operational performance

The global COVID-19 pandemic has caused unprecedented disruption to the travel industry. Pre-COVID, Webjet’s financial performance was stunning in line with a stable annual growth rate with the company FY20 reporting its first-half result of A$ 2.3 billion in total transaction value, up 25% year-over-year and revenue of A$ 217.8 million, up 24% compared to FY19. The COVID-19 had a devasting effect on the industry which directly weighed on the company’s performance by H2FY20. By the end of FY20, the total transaction value dipped -21% along with revenue which went down -27% to A$ 266.1 million. Webjet financial and operational performance is highly dependent on the global travel industry. COVID-19 forced the world to get isolated which by the end of 2020, most of the global travel industry was on life support. In the face of this existential threat, Webjet acted quickly to rethink its strategy, restructure, and recapitalise which give us confidence in the company to be well-positioned once the return to normalcy.

Company Updates

Following on from the outstanding profitable growth in FY19, Webjet went on to report a record first-half underlying earnings in 1HFY20, driven by the international WebBeds strategy. The COVID-19 pandemic had a devastating impact on the travel industry by 2HFY20 and therefore weighed on Webjet’s businesses. Government-imposed travel restrictions, domestic and international border closures along health concerns led to a material plunge in the total transaction value and bookings across Webjet’s businesses, resulting in nominal revenues since the end of Q1-2020. Webjet has well addressed the situation and has demonstrated discipline on mitigating the impact through significant cost-reduction initiatives and strengthening its balance sheet through capital raisings. As the company continues to navigate the challenging operating environment induced by COVID-19, we believe, Webjet is heading into FY21 with a strong capital position offering the company considerable financial and strategic flexibility.

Webjet Online Travel Agency is preparing for a domestic led tourism industry ahead of FY21

Webjet’s online travel agency business presented a resilient result throughout 1HFY20. In a challenging environment with soft domestic travel conditions, the business maintained its total transaction value and EBITDA margins, highlighting the strength of the Webjet brand as the leading online travel agency in the market. Before the first global COVID-19 outbreak, Webjet has shown a robust total transaction value and bookings inline with its growth annual growth. However, by the end of Q1-2020, the company experienced a significant fall in its operational results due to the closure of the Australian borders. Webjet has shown an impressive capability to respond quickly to the situation and had cut costs by 78% in the underlying Q4-2020 costs compared to the average pre-COVID-19 period which allowed to mitigate any financial risk. During the travel restrictions and border closures, Webjet took the opportunity to implement significant changes to its website and adjust its customer experience ahead of the reopening. We believe that Webjet is well-prepared for the expected domestic-focused tourism industry in FY21. The domestic leisure markets are expected to be the first to open and Webjet’s online travel agency business segment is well placed to take advantage given 85% of Webjet flight bookings are domestic and its strong focus on serving the leisure market.

WebBeds is taking the opportunity to transform its offering to emerge as the leading B2B player

Before COVID-19, WebBeds was the fastest-growing B2B player in the world and had cemented itself as the number two global player. Increased scale in all regions had expanded the total transaction value, EBITDA margins. The business was tracking ahead of its FY22 profitability target.

The WebBeds business had grown to be the largest Webjet business unit, reporting more than A$ 96 million EBITDA, over 60% of the total EBITDA of Webjet. Most regions outside of China exhibited strong total transaction value and bookings growth for the first two months of 2020, however by the end of Q1-2020, there was a material escalation of booking cancellations and a significant reduction in overall booking activity due to the restrictive COVID measures. Webjet has spent three years building up WebBeds B2B to become the second global player, the company continues to rethink and refine its processes and technology platforms to emerge as the leader in its field, therefore, we believe the company is well-prepared looking forward to FY22.

Growth strategy

The COVID-19 surfaced as a dark time for the travel industry and had significantly affected Webjet global operations. Despite the difficult period, the company has exhibited discipline and initiative to emerge leaner, faster, and more focused on its customers. Webjet growth plan is to win market share and be more profitable. The company is putting an effort to re-assess each of its business segments as announced in its “transformation strategy update” to solidify its global position as a leader in its space as soon as the travel market reopens. Webjet intention by FY21 is to bring WebBeds business to become the number one global B2B player. Webjet expects as early as domestic-led tourism to recover to develop its brand strength while getting ready for the international market to progressively re-open. As for the Online Republic’s strategy is to improve its underlying performance by sharpening its product offering and enhancing its processes. We feel confident in Webjet’s ability to navigate through an extended period of economic challenges as the company has recently entered FY21 in a strong financial position with A$ 207.6 million of cash and A$ 186.9 million of debt and extended senior debt maturity. Furthermore, Webjet completed in April last year a A$ 346 million institutional placement and a non-renounceable entitlement offer besides a A$ 163 million notes offering. The proceeds from the placement and entitlement offer reinforced the company’s balance sheet and supported the unwind of negative working capital reducing the B2B debtor exposure. Upon the reopening of the travel industry, we think that Webjet’s capital structure to be adequate to support further growth looking forward FY21 and beyond.

Industry Analysis

While the global travel industry has been severely impacted by the COVID-19 pandemic, we believe that travel is resilient and that Webjet is well placed to capture the pick-up in travel activity as travel conditions start to normalise.

Webjet is prepared to grow its market share however, the company highly depends on the pace of the economic recovery and the global travel policies.

Webjet provides a critical distribution channel for the global travel industry and we expect the company to play an increasingly important role in connecting clients and customers in a recovering travel sector. Upon the travel sector return to normal, it is expected to occur at various points in time and in different regions due to differences in timing and severity of each region’s COVID-19 experience. With a truly global footprint in terms of geography and client base, Webjet is well placed to capture the pick-up in travel momentum as domestic and international borders reopen around the world.

Slower recovery than expected. The pre-covid level may be attainable by FY23

The global tourism industry lost an estimated US$ 1.3 trillion in export revenue in 2020. The travel industry’s recovery will be slow as new COVID-19 variants are causing governments to continue to implement travel bans to curb the spread. Travel experts are now very cautious in their outlook, with the majority not expecting a return to pre-pandemic levels before 2023.

Investment Thesis

1HFY21 Financial Summary

For the six months ended December 31, 2020, Webjet revenues decreased by -90% to A$ 22.6 million. Net loss totalled A$ 132.2 million vs. an income of A$ 9 million. Revenues reflect the Business to Business Travel segment decreased by -94% to A$ 8 million, Business to Customer Travel segment decreased by -84% to A$ 14.6 million. Net loss reflects Thomas Cook receivables written-of decreased by -78% to A$ 9.5 million (income), Other non-operating expenses -Balancing increased by 43% to A$ 93.3 million (expense).

FY20 results highlight the substantial impact of COVID-19 during 2HFY20

The Company reported a record 1HFY20 driven by the performance of the WebBeds business segment. For the Underlying operations, the total transaction value went up 25% year-over-year to A$ 2.3 billion. Revenue was up as well with +24% to A$ 217.8 million. EBITDA followed the same path with a 43% increase year-over-year to A$ 86.2 million. 2HFY20 was impacted by the COVID-19 pandemic which resulted in nominal revenues in all the business segments from the end of Q1-2020 onward. As a result, FY20 total transaction value was A$ 3.02 billion, down -21% compared to FY19, revenues went down as well to A$ 266.1 million, down -27% year-over-year, with EBITDA at A$ 26.4 million, down 80% compared to the previous period. To mitigate the impact of COVID-19, the company instigated a range of cost reduction measures by the end of Q1-2020. These initiatives helped reduce costs by 50% compared to 1HFY20.

Strengthening the Balance Sheet

Webjet pre-emptively proceed to A$ 346 million equity raising in early Q2-2020 to help mitigate the impact of COVID-19. The objective was to strengthen the balance sheet and support the unwind of negative working capital and the reduction of B2B debtor exposure. During the second half of FY20, B2B debtor exposure risk was significantly reduced with the net exposure falling from A$ 102 to A$ 117 million by the end of Q1-2020 to less than A$15 million by the end of FY20. Furthermore, the company completed an A$ 163 million notes offering in early Q3-2020. Proceeds were used to repay A$ 50 million of the company’s existing term debt and extend remaining term debt maturity into late 2022, as well as being available for ongoing capital management and possible acquisition opportunities.

Dividend

In February 2020, the Company declared a 1HFY20 interim dividend of 9 cents fully franked. Following the onset of COVID-19, payment of the interim dividend which was due to be paid in April 2020 was initially deferred until October 2020. Considering ongoing market uncertainty, payment has been further deferred to April 2021. No final dividend was declared for FY20.

FY21 Outlook

We expect the travel industry recovery to be gradual and episodic. While the travel demand is likely to be minimal for the next 12 months, there are increasing signs of substantial pent-up demand. Webjet intends to focus on capturing demands and provide great service to solidify its position as a key player in its sector. As Webjet is strongly dependent on the reopening of borders worldwide, the key focus for Webjet is to ensure the company survives during an extended period until the return to normal and we believe Webjet disposes of a solid balance sheet to sustain a prolonged period of uncertainty.

Technical Analysis

Trend

Pre-COVID, Webjet has continuously remained on the upside reaching an all-time high in August 2018 at A$ 12.83 per share. Throughout 2019, Webjet remained above the A$ 8 per share and tested this level twice, once in early 2019 and the second time in late September 2019 before breaking down all the way to A$ 2.25 per share, Webjet’s all-time low. The sell-off was triggered during the peak of the market panic induced by the first global outbreak. Since then, Webjet recovered impressively by 151% despite the continuing challenges faced by the travel industry. Webjet still exhibits a bullish price action, however got trapped below the nearest resistance at the A$ 6.35 level which coincides with the multi-year key level and the 38.2% Fibonacci retracement from the All-time high and all-time low swing low. On the positive side, If Webjet breaks the resistance at A$ 6.35, WEB can rally toward our primary target at A$ 7.54 and eventually retest the psychological level of A$ 8 per share.

Key price levels

The key levels to observe are the 38.2% Fibonacci level and the 50% retracement from the All-time high and All-time low swing low. These two levels are key resistance levels and once a clear breakout of these price areas occurred, WEB may rally back to its previous pre-COVID range of A$ 8 and A$ 11 per share.

Volume and momentum

Volume decreases since the last 200-day with the 20-day volume average down by -19.26%. The price action remains bullish in the near-term, evolving in a range between A$ 4.78 and 6.35 per share.

Trade consideration

  • Market participants might be interested to enter at a key support level: A$ 5 per share.
  • Consider reducing exposure below A$ 4
  • It is recommended exiting the trade below A$ 3.5

Recommendation

We are issuing a “Buy” recommendation on Webjet as we recognise a solid upside potential from a company with strong fundamentals. Furthermore, WEB has demonstrated during the pandemic its ability to navigate troubled waters by maintaining a robust balance sheet. While the global travel industry has been severely impacted by the COVID-19 pandemic, we believe that Webjet is well placed to capture the pick-up in travel activity as travel conditions start to normalise.

 

Scroll to Top

Login

By submitting this form, I agree to the TERMS AND CONDITIONS and PRIVATE POLICY