Webjet
About the author:
- Author name:
- By Belinda Moore
- Job title:
- Senior Analyst
- Date posted:
- 30 June 2014, 9:57 AM
- Sectors Covered:
- Agriculture, Food & Beverage, Travel and Chemicals
Moving forward, Webjet (WEB) needs to find growth in new businesses to offset their maturing base business. With this in mind, and given the subdued domestic travel market, we have revised our share price target.
FY14 guidance reconfirmed
WEB recently reconfirmed its FY14 EBITDA guidance of A$21.5m, up 22% on the pcp. The company also noted that the Australian travel market is subdued (increased airline capacity, slowing domestic airline passenger numbers and falling ticket prices).
The 1H14 result from WEB was stronger than expected, and given WEB's seasonal earnings skew to the second half we believed full year guidance was conservative at the time. We consequently moved our forecast 7% ahead of guidance or EBITDA of A$23.0m. Now, given the subdued domestic travel market and fall in consumer sentiment and spending (post-Budget), we now think it is prudent to move our forecast in line with guidance.
Earnings growth in FY14 reflects a full year's contribution from the Zuji acquisition and a reduction in losses from Lots of Hotels. NPAT growth will also benefit from a much lower tax rate due to the utilisation of Zuji carry forward tax losses.
Forecast revisions
We have reduced our FY14 and FY15 NPAT forecasts by 7.5% and 14.9% respectively. The large revision to our FY15 forecast reflects a more conservative view on the base Webjet business given the state of the domestic travel market and our concerns regarding increased competition.
FY15 earnings should benefit from further Zuji synergies, growth from other new businesses and a material reduction in one-off development and transformation costs.
While there is uncertainty over WEB's future growth profile, we expect that its multiples may remain depressed. We retain our Hold recommendation and reduce our share price target to A$2.50 (previously A$3.45).
More information
Clients can access our detailed research. If you are interested in finding out more about Webjet (WEB), please contact your nearest Morgans office.
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