In this regular column Stockhead contributor and seasoned tech analyst Tim Knapton looks at the significant happenings in the Tech market. This week he has turned his attention to the travel sector.
Webjet (ASX:WEB) is Australia’s leading online travel player with a market share of twice that of its closest competitors Wotif and Expedia.
Travel is of course the sector hardest hit by COVID restrictions and while global case growth is still hovering around 1% a day, vaccines are now on the way after successful trials from Pfizer, Moderna and Astrazeneca and surely there will be others.
The strong likelihood is that there will be a surge in travel once the consensus is forming that COVID is coming well “under control”. There was a clear empirical precedent when Chinese domestic travel activity rose by 230% from February into March this year and since then travel has maintained normative levels.
If that’s going to happen on a global basis mid to late next year, which seems increasingly likely. then Webjet should in advance be able to push well through its pre-COVID high of $10.26, and keep heading toward the all time high of $17 once the impact is clearly being registered on the group’s bottom line.
That’s because it will enjoy a treble whammy of reduced opex at a time when pent up travel demand is unleashed, creating unprecedented levels of travel bookings, of which it will seize an increased market share.
Prior to COVID the stock had delivered consistently high earnings growth and was trading on an EBITDA multiple in the mid-teens.
Its EBITDA run rate had reached $170 million just before COVID and the treble whammy should drive that to a cyclical peak of more like $300M.
Put that on a multiple of 15 times and that translates to a share price of just over $13.
At the end of the day Webjet is a ecommerce business and so it faces secular growth prospects beyond COVID because the online penetration ratio of the $US1.3 trillion global travel industry is likely to continue to rise above the current 63% level.
And Webjet is indeed well positioned to grow share from more terminally damaged traditional travel providers like Thomas Cook, which folded a year before the onset of COVID.
Over half of its gross revenues are from the Webbeds B2B platform which digitally connects the highly fragmented hotel sector with travel and booking agents, tour operators and wholesalers. As the recovery comes, surviving industry operators will be avidly in search of occupancy and Webjet has openly stated it expects Webbeds to become the No 1 player globally as the market recovers.
Meanwhile, the group’s equity and Euro raisings have solidified what was not a heavily geared balance sheet prior to Covid and the cost reductions have exceeded the company’s targets, so it has a lengthy cash burn runway.
The stock looks very cheap compared with its NASDAQ peer Expedia which prior to COVID was generating an EBITDA margin of half Webjet’s 34% – Expedia has already recovered to its pre-COVID high. Defensively, more than half of Webjet’s revenues are Australia-NZ based and this region is almost COVID free now.
Tim Knapton is CEO of TechVoyage, which provides videos, research and financial analysis on technology in its manifold forms and sectors.
Previously Tim was Head of Corporate Broking at Deutsche Australia and before that ran a research department for a leading broking house. For many years, Tim has supplied financial commentary on a freelance basis to various newspapers and magazines, including his own columns in the Australian Financial Review, BRW and Shares.