Does Webjet looked poised to revise its full-year guidance?
Having delivered a 26% rise in first-half earnings before interest, tax, depreciation and amortisation (EBIT) to $18.2 million – well above the figure management promised last November – Webjet's (ASX: WEB) share priced is up around 17% since $4.92 early February, having bounced to an all-time high of $6.47 mid-March.
Webjet's profit rose 17.2% to $10.7 million and the company declared a fully franked interim dividend of 6.5¢ a share.
What the market particularly liked about the online travel agent's interim result for the six months to 31 December 2015 was the impact of greater confidence consumers' now have booking online with 12% of bookings – mostly domestic ones – now made on mobile phones and around double that being booked on tablets.
As a result, Webjet continues to gain market share for international and domestic flights.
A larger number of visitors to the website led to total bookings growth of 15%, and a 24% jump in international flight bookings, compared with a 5.2% rise in outbound passenger numbers, while domestic bookings were up 14% within a total market that grew just 0.2%.
Equally pleasing, international bookings are steadily increasing and Webjet is also selling more combined hotel-and-flight packages, plus car-hire options on its consumer website.
While total transaction value – at $796 million – is tracking 30% higher than last year since the start of the second half, managing director John Guscic says it's still too early to have the confidence to change the company's full-year guidance of $33.5 million of EBITDA, especially with domestic and international airfares being flat during the last few months.
Meantime, what's helping to drive increased transaction values – with the annual transaction value run rate rising 53% to $55 million – is the company's renewed focus on presenting hotel-and-flight packages.
Having invested $5.5 million growing the B2B division – which offers hotels to travel agents – in the first half, Webjet is planning to add another $6.5 million investment in the second half, which is expected to double EBIT to around $11 million in the 2016-17 financial year.
The company is also expecting a 20% rise at its B2B division for each of the next five years. Assuming it can pull this off, the B2B division is expected to contribute around a quarter of the company's earnings.
Rather than diluting future growth, Guscic expects a renewed focus by rival industry players – including Expedia, Flight Centre (ASX: FLT), Kogan and Luxury Escapes – on selling packaged holidays online to boost the category as a whole by raising
awareness of packages rather than slow Webjet's growth.
After 18 record months in a row, much of Webjet's growth story seems to have made its way to the share price with the stock now trading on a 40% premium to its intrinsic value (IV), and around a 5% premium to a median price target of $5.75 it is by no means cheap.
However, the stock looks poised to be re-rated on the strength of its improving Asian market, and ongoing foothold into its Middle East, African and European markets, while a launch of the lots of Hotels business in the North American market is expected to repay the investment fully with $1 million EBITDA in the 2017 financial year.
The company is also on the lookout for attractive acquisition opportunities, especially with B2B businesses in Asia, and with an investment grade balance sheet – including funding surplus of $19.5 million – it is well positioned to do so.
The stocks has strong long term cash flow relative to reported profit, and return on equity (ROE) which has averaged 26% since 2006 is forecast to grow to 34.45% by 2018.
Meantime, earnings per share (EPS) which has been excellent over the past five years is expected to remain so; with EPS of $0.27 in 2016 jumping to $0.41 in 2018.
Equally encouraging for investors, the stock is forecast to increase its IV by around 30% over the next 12 months. While the stock isn't as attractively priced as it was, it is a quality growth stock that's being priced accordingly, and there's plenty of upside ahead of it.
Watch out for re-ratings above the more bullish 12 month price target of $6.76, and look for an entry point under $5.75.