Webjet: Increased market share + lower costs = higher profits

About the author:

Belinda Moore
Author name:
By Belinda Moore
Job title:
Senior Analyst
Date posted:
25 November 2021, 9:00 AM
Sectors Covered:
Agriculture, Food & Beverage, Travel and Chemicals

  • WEB’s 1H22 result continued to be severely impacted by COVID. Importantly, it is now generating positive operating cashflow and it has plenty of liquidity.
  • The 3Q22 is tracking ahead of the 2Q22 despite it being a seasonally slower period. Two of its three businesses are now profitable. WEB is targeting to return to pre-COVID booking levels in the 2H23.Management continues to maintain its aspirational market share targets and wants to reduce the company’s cost base by 20% when it returns to scale. This means that WEB should be materially more profitable post COVID.
  • With 16.4% upside to our new valuation of (login to view), we upgrade to an Add rating.

Event: 1H22 result was a strong improvement on the pcp but still loss making

TTV rose 148% on the pcp, revenue was up 145% and WEB reported an underlying EBITDA loss of A$15.9m compared to A$40.1m in the pcp. NLATA was A$34.2m compared to A$48.4m in the 1H21.

Analysis: Operating cashflow performance was the key highlight

In the 1H22, all divisions were loss making except the Webjet OTA (1H EBITDA was A$3.6m). The OTA was profitable for the first four months but was unprofitable for the last two months given ANZ lockdowns.

As expected, Online Republic, now called GoSee, reported a small loss of A$1.6m. While WebBeds was unprofitable for the 1H (-A$10.4m), it was modestly profitable in the 2Q given the northern hemisphere holiday season (benefited from intra-Europe and domestic US travel).

Operating cashflow was A$32.8m compared to an outflow of A$17.0m the pcp. This was materially stronger than expected. As WebBeds grows its TTV, it generates positive working capital. WEB had net cash of A$140.1m (excludes cash on trust of A$2.7m and includes A$219.9m of convertible notes as debt).

Outlook comments were optimistic; expecting a full recovery in 2H23

WEB’s two larger businesses (WebBeds and the OTA) have both seen TTV continue to increase in November and are profitable. All business units are winning market share. WEB expects a stronger 3Q22 than the 2Q22 despite this being a seasonally slower period for WebBeds. WebBeds’ forward bookings suggest that TTV will be >70% of pre-COVID levels in December.

At this stage, WebBeds isn’t seeing a slowdown in Europe despite rising COVID cases. It is currently benefiting from the Trans-Atlantic reopening, a recovery in the Middle East and parts of Asia are reopening.

The OTA is expected to benefit from a full domestic travel recovery in CY22. While WEB was cautious on the OTA’s international recovery in CY22, overtime, its acquisition of Trip Ninja is expected to materially grow its international bookings given it automates selling complex international itineraries and offers competitive pricing.

WEB expects the group to return to pre-COVID booking volumes by the 2H23.

WEB reiterated that its cost reduction initiatives will reduce its cost base by 20% across the group once the business returns to scale.

WEB’s aspirational TTV target for WebBeds remains A$10bn vs A$2.6bn in CY19. It is aiming to be the largest player in this A$70bn B2B global market place – taking its market share from 4% to 14%.

We revise FY22 and FY23 forecasts and make slight upgrades to FY24

We expect WEB to be EBITDA positive for a full six months from the 2H22. Given its cost out targets, we forecast WEB’s FY24 EBITDA to exceed CY19 levels.

Investment view

WEB’s share price has been weak this month as concerns around rising COVID cases and lockdowns in Europe have weighed on the sector. Following forecast changes, our blended valuation has risen to (login to view).

With 16.4% upside to our new price target, we move to an Add rating. Based on our forecasts, WEB is trading on an FY24 recovery year PE of 17.9x which is at a discount to its five-year average PE (pre-COVID) of 20.6x.

The main near-term risk to our view is if more countries in Europe go into lockdown, given this will slow down travel demand.

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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.

Solid top-line outcome: BAP’s 1Q22 revenue was flat on the pcp, an extremely resilient result given the extent of lockdowns in the period (~70% of stores impacted) and the strength of the pcp (cycling 27% growth). Composition comprised: Trade +2%; NZ -10%; Retail -12%; and Specialist Wholesale +7%. Overall, BAP stated that non-lockdown areas are outperforming expectations. ▪ 1Q22 trade & retail: Trade/Burson revenue was up +2% on the pcp (LFL sales - 1%; cycling 8% pcp); NZ/BNT revenue was down -10% (LFL sales -15%; cycling +4%); and Retail/Autobarn revenue was down -12% (LFL sales -16%; cycling +36%). Within the Retail segment, online sales were +80% on the pcp. Stores percentages impacted by lockdown were: Trade 70%; NZ 100%; and Retail 50%. ▪ Specialist segment results: Specialist wholesale revenue is up 7% on pcp, with Auto electrical/Truckline divisions ‘performing strongly’; and WANO underperforming. ▪ GM pressure expected to be temporary: BAP stated GM was stable across Wholesale and NZ (45% of FY21 revenue); and down ~50bps Trade and Retail (~55% of FY21 revenue), driven by promotional and online pricing in lockdown areas (we assume no margin pressure witnessed in non-lockdown areas). BAP expect margins to revert once lockdowns ease. ▪ The cost base has increased vs pcp, a function of duplicated DC costs (commencement of new VIC DC), and higher group and team member support (covid related) costs. BAP noted FY22 store rollouts and refurbs are on track.

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