Consensus community valuation
$11.66
Average Intrinsic Value
294%
Undervalued by
Active Member Straws
#Webjet - Undervalued
Last edited 4 months ago

The business can be split in two main segments:

Webjet – Online travel agent & Webbeds – B2B Accommodation

The CEO has skin in the game owning 5% of webjet . 7 years ago webjet took a new direction to open up new markets outside Australia and NZ and started buying B2B accommodation companies all over the world

Webbeds is now the second largest B2B accommodation broker in the world with 4% of the $50 billion worldwide hotel market. Webbeds allows travel agents to book wholesale hotel rooms from all over the world. Currently the market is fragmented into thousands of small regional operators

Hidden away behind the Webjet name is Webbeds.

Webbeds has grown revenue from $114m (2018) to $185m (2019) to $130million in only six months of 2020 with an 80% increase in EBITDA.

Before the corona virus hit Webbeds were on track for a record year and to pass webjet as the main component of the business

Another hidden value in Webjet is their Rezchain product.

Webjet built their own cross platform travel booking verification system using block chain technology. The system allows different booking platforms to talk to each other allowing travel agents to book hotel rooms from all around the world in seconds.

Webjet’s Australian competitors Flight center and helloworld pay a third party to use a similar system called zeno from Serko current share price $4 ($15million in revenue, not profitable)

With Webbeds preforming so well in the past 12months there has been rumors in the financial press before Christmas of a potential takeover bid from the biggest European competitor Hotelbeds. Management downplayed it but didn’t deny. Then the fires and corona virus has put Webjet into a tailspin.

Webbed’s plan for continued growth is to continue the plan of strategic business purchases to grow market share. Webjet has had good success at buying companies and generating more profit with the implementation of their Rezchain technology. Success in Dubai, Spain, North America, UK (Jac Travel biggest purchase to date $265m) has strengthen the overall company and reduced exposure to one particular market in the world, when the Australian fires were out of control the Webjet share price dropped even though the majority of revenue is now outside of Australia these short sighted share price shocks can present buying opportunities for those who understand truly how global the company is.

Another recent hit to Webjet’s share price was in September 2019 when Thomas Cook went bankrupt (UK travel agent) Thomas Cook owed Webjet $44million, the Webjet share price went from highs of $16 down to $10. Yes losing $44million is not nice but the global company was experiencing growth of 133% in Russia, 150% in India, 50% in Japan, 23% in China and entering Korea and Indonesia. With the sell down overdone multiple Webjet directors including the CEO John Guscic bought more shares around the ten dollar price. The share price recovered quickly to $14. I like to see directors backing the direction of their company and putting their own money on the line.

The first half 2020 results released in the middle of the corona virus outbreak were actually fantastic, revenue up 24%, profit up 55%, Webbeds revenue up 80%, debt reduced to 30% of equity. The announcement also noted the significant impact of corona virus giving a guidance of a potential drop of 15% revenue.

I believe this was a mistake to quantify a number, as at the time of the announcement the virus had not spread to western countries. Since then raised positive tests are being found in Italy, Korea, Australia, USA and Japan to name a few. If the Olympics are cancelled in Japan scheduled for July 2020 webjet will need to announce further downgrades to earnings as the majority of global tourism will be put on hold. In an interview the CEO stated in February they have had zero sales in China where only a few months ago it was one of their fastest / largest growing markets.

The share price has not been so low since 2016 when the business was generating half as much revenue and profit. Webbeds was only a few years old with revenue of 30million and EBITDA of $3million compared to $130million revenue and $60 million EBITDA for the first 6 months of financial year 2020

There is still too much potential bad news to come in regards to corona and the general investor doesn’t fully understand the webbed business, the negative sentiment will weigh the share price down.

I will definitely be looking to buy Webjet in 2020 but it will be after a director or major shareholder purchase or the stock falls below $7.50 as the IT system Rezchain is worth that even if they never booked another flight again the low share price will also attract potential suitors for a take over like previously mentioned. If any further travel is restricted or further outbreaks occur in America, Australia or other markets vital to Webjet a further fall in share price is not unreasonable.

Read More
#Valuation
Added 5 months ago

So, taken straight from the FY19 annual report "Webbeds has now become Webjet’s largest business, accounting for approximately 56% ($2,154 million) of Group TTV, 50% ($184.5 million) of Group revenue and 48% ($67.3 million) of Group EBITDA (before corporate costs)."

So B2B and B2C account for 48% and 52% respectively of earnings and therefore EPS.

As seen above, WEB inflow of cash is quite diversified between the two major segments and I believe Google Travel will not affect much of Webjet's margins. as a large amopunt of their traffic is organic reach, direct search or PPC. The most google can take is 8%, a large number but this is an absolute best case scenario for Google Travel.

WEB doesn't exactly have a competitive advantage, this may be one reason why the sell off was warranted, nor a strong moat. But i believe its strong brand name, ease of use and the full function booking from flight to hotel to car hire is great. However, Webjet is carving something unseen in the travel industry through RezChain, which is a cross platform travel booking verification platform, this could lead to a wide economic moat and is something i may look into at a later date.

Not much to say about management, all round great. WEB’s senior management has a mix of backgrounds, with a core group of directors and managers having been with the company for several years.  In the early 2000’s this group pursued the development of an integrated booking platform to streamline its website activities  Since then they have expanded Webjets services into complimentary fields that can be managed via their existing website.  Webjet’s ROE over the last several years attests to the success of these decisions and management’s ability to provide good returns on investor capital. Internal ownership is substantial, with over 12% of outstanding shares owned by the directors and senior managers alone.  Bonuses are typically 20% or less of total remuneration across the management group - taken from. https://www.macrobusiness.com.au/2011/09/equities-spotlight-webjet-web/

With that out the way lets get into the technicals.

Using the discounted cash flow analysis for the Webbeds segments alone which accounts for 48% of EPS. stockopedia.com estimates 28.4% TTM growth rate and a long term growth rate of 12.2%

=============================================================================

B2B EPS = 63.3 * 48% = 0.30384

- B2B EPS = 0.30384

- Expected EPS growth: 12% annually

- Earnings projected forward at 5 years

- Leveled off at the industry average 6% there after

- 11% discount rate

Potential SP: $8.19 for the Webbeds segment alone (INSANE) at 12% growth

==============================================================================

B2C EPS = 63.3 * 52% = 0.3029

- B2C EPS = 0.33

- Expected EPS growth: 12% annually

- Earnings projected forward at 5 years

- Leveled off at the industry average 6% there after

- 11% discount rate

Potential SP: $9.01 for the B2C segment. TOTAL = $9.01 + $8.19 = $17.2

======================================================================================

So, there you have it, a discounted value of $17.2 is where I put Webjet, and that is only factoring a 12% growth value, i do believe, growth will continue in the medium to long term but in the short term WEB will suffer with the Corona Virus media storm. I see continued downside for the remainder of the month of February depending on their half yearly. Once corona virus vaccines hits the shelfs its business as usual.

WEB has great long term outlook, with a narrow to potentially wide moat, and a strong brand name and diversification. In addition, it is the number #2 B2B travel online platform and a global presence is only ever a positive. The recent sell off is not unwarranted however oversold, WEB is a good long term investment and an actual steal under $11, not to mention the 1.9% dividend. Also, do take into consideration WEB has multiple bidders interested at taking the company private.

 

Read More
#Valuation
Added 2 months ago

Any one else scratching their head on WEB and other travel valuations at the moment post capital raises? Hitting pre-covid levels in terms of market cap is mind boggling given the uncertainty. 

Read More
#Bear Case
Added a month ago

Thinking the consensus valuation/market valuation is maybe a bit high for this one, with the stock currently trading at a PE of roughly twice what it normally has historically. Valuations might not be taking into account the recent capital raise and issue of new shares?

Thoughts are that the business outlook for international sector is probably a long way from returning to anything near normal, however not sure of what proportion of WEB's business is in the international market. Regardless, thinking the PE being traded at (56), should be less than historical levels (20-30 from memory), rather than almost double.

NB; PE numbers taken straight from commsec app

Read More
#Capital Raising
Added 2 weeks ago

01-July-2020:  Another capital raising announced by WEB today:  WEBJET ANNOUNCES EURO 100 MILLION CONVERTIBLE NOTES OFFERING

And the SP went up +7.5% on the back of that.  FLT (Flight Centre) also announced today they were accepting assistance via a loan from the Bank of England under the UK's COVID-19 support arrangements for business, and FLT were also up today (+3.15%).  Further strengthening of company balance sheets is generally seen as a positive in this new environment.

Read More
#Capital Raising
Last edited 3 months ago

01-Apr-2020:  Webjet (WEB) have released a number of announcements this afternoon with the main 3 being:

WEBJET ANNOUNCES A $275 MILLION EQUITY RAISING

Webjet Equity Raise Investor Presentation

Update - Dividend/Distribution - WEB

So, the dividend has been deferred for 6 months until October 15, they are raising $275m at $1.70/share, a LONG way below the $3.76 they last traded at before the trading halt and suspension, and a very long way below the $13.72 they closed at on Feb 19th (around 6 weeks ago).  

The headline details of the capital raising are that they are undertaking an institutional placement and an accelerated pro-rata, non-renounceable (1 for 1) entitlement offer to raise a minimum of $275 million via: 

  • A fully underwritten institutional placement to raise $101 million, and
  • A partially underwritten entitlement offer to raise a minimum of $174 million and a maximum of $231 million.

As correctly suggested by @AUROPAL (see Webjet forum), the delay appears to have centred around the underwriting of the retail component of the raising, which has ended up only being partially underwritten.  In other words, the first $101m (the institutional placement) is locked in, but whether they raise the full remaining $174m (of the $275m) is very much up to ordinary retail investors and how much more money they want to pour into WEB - at a price (of $1.70) that is 87.6% below their Feb high of $13.72.

Macquarie Bank (MQG) became substantial holders of WEB shares during the trading suspension, suggesting they were involved in organising this raising for WEB.  Macquarie also organised the "rescue raising" for RCR last year, also at a huge discount to their last traded price, and of course that didn't stop RCR from going into Administration shortly afterwards anyway - with investors that had hung in there until the end losing 100% of their money.  Not sure how much exposure Macquarie managed to retain through to when RCR management called in the Administrators (before their lenders did), but I would image MQG had managed to offload their shares before then.  It will be interesting to see what Macquarie do with their WEB shares now.  If they retain them, that's likely a positive.  If they quickly sell them after the capital raising has been completed, I would see that as a negative.  Because they are substantial holders, any sells of 1% or more must be reported via an announcement to WEB which the ASX will publish.

The 1:1 (1 for 1) entitlement offer means that current WEB shareholders (that were on the books before they went into the trading halt and suspension) will be entitled to buy one WEB share (at $1.70) for every one WEB share they already own.  Considering that WEB have announced that they are prepared to extend the retail component by an additional $57m from the proposed $174m up to a max of $231m - which seems a little optimistic to me - I would think it HIGHLY likely that existing shareholders will ALSO be given the opportunity to apply for additional shares (at the same $1.70 price) that would be from the pool of shares not taken up by other shareholders as part of the entitlement offer.

I guess the main questions shareholders need to ask are:

  1. Will WEB survive from here?  I would think that if they can raise at least the minimum $174m from the retail component (the entitlement offer) of the raising, then they have a pretty good chance of surviving, but that will obviously depend of how soon global travel and tourism gets back to normal from here.
  2. If they are going to survive, what is their intrinsic value now, and how much of a discount to that intrinsic value does this $1.70 price represent?

I don't hold any WEB shares, so I won't be spending too much time on those questions myself, but considering I did hold shares in RCR when something very similar happened to them, I would be thinking carefully about the answers to those questions if I did hold WEB shares.

 

Read More
#Shorting Activity?
Last edited 4 months ago

20-Mar-2020:  WEB are still suspended from trading, pending the details of their capital raising, which Marcus Padley in his daily newsletter is calling a "rescue raising".  Today, we learn that UBS has now become owners of 5.78% of WEB (on Tues March 17) and it appears that the vast majority of their position is for the purposes of "Securities Lending Agreements", which usually means they're providing stock to shorters.  Appendices A, A1 & B have all of the details.  Apart from the Prime Brokerage Agreement with TIGA (Thorney Investment Group Australia), there are Securities Lending Agreements with 9 different entities.  And I would imagine that UBS weren't the only ones getting set to capitalise on such an opportunity - in terms of shorting stocks like WEB.  If the shorters are wrong, it could be a great buying opportunity, but so far they've been right.  You can read today's announcement here.

Read More
#Impact of VAH Administration
Added 3 months ago

21-Apr-2020:  Impact of Virgin Airways Administration

Webjet Limited (Webjet) notes the announcement today by Virgin Australia Holdings Limited (Virgin) that it has appointed a voluntary administrator.  Webjet has enjoyed a strong long-term relationship with Virgin and sees it occupying a vital position within the ongoing Australasian travel landscape.

Notwithstanding its relationship, Webjet does not have a material financial exposure to Virgin should an administrator restructure the airline or elect to cease trading.  Webjet books airfares on behalf of its customers as agent and is not the provider of the service. Webjet is working closely with its customers and on their behalf to process refunds/credits directly with all airlines who are no longer able to honour prepaid tickets, including Virgin.

While the travel industry will be impacted by Covid-19 for some time, Webjet considers that it will emerge with a strong competitive position given the diversity of geographic markets in which it operates, its diverse product offers and its capital position following the recent capital raise. 

Read More
#Capital Raising
Added 4 months ago

19-Mar-2020:  We knew that some companies would go to the wall in this environment, and we know that travel agents are on the frontline of this.  WEB are in a trading halt this morning pending a capital raising announcement.  They were already down -72.9% (from $13.72 to $3.76) in the past month, and I don't think a cap raising was priced in even at that level, so they're going lower.  FLT is down -25.6% just today as I type this, and that means they're down -71.8% in the past month.  As I wrote in a "Bear Case" straw for FLT (Flight Centre) last night, FLT have debt (as do WEB, but FLT have more than WEB) and they're directly in the firing line, or at the coalface of this as far as the market is concerned, so they're an obvious short.  So are WEB.  Because WEB are a reasonably capital-light business, being a purely online business, with much lower overheads (fixed costs) than a company like FLT, it makes you wonder why they NEED to raise capital when they've already had their SP smashed so much (-73%).  I imagine it is to do with trying to avoid breaching their debt/lending covenants.  That's an educated guess rather than a statement of fact, but it makes sense to me, unless they're looking to buy distressed assets (M&A).  The details will emerge soon enough.

Read More
#Overview
Added 5 months ago

Okay Team, we're no stranger to Webjet, it's sort of a buzz word around these parts but for good reason. Fundamentally the company is great with a globalized platform, strong brand and being the industry leader in all fronts of business.

Webjet operates in two part B2B and B2C, throughout these two segments Webjet has many subsidiaries but for the sake of the analysis ill be strictly focusing on these two segments entirely. If you want further information on what Webjet does exactly, their business divisions and segments - go read the annual report or this article https://skift.com/2019/08/22/how-australias-webjet-is-building-a-global-business-by-going-wholesale/ .

Read More
#ROCE from simply wall street
Added 2 months ago

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)

Or for Webjet:

0.12 = AU$106m ÷ (AU$1.4b – AU$551m) (Based on the trailing twelve months to December 2019.)

Therefore, Webjet has an ROCE of 12%.

Read More