Wotif The Price Was Lower?

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By Chris Shaw

While it may be true you can’t have too much of a good thing it is quite possible to pay too much for a good thing, which appears to be the major issue surrounding online booking group Wotif.com Holdings (WTF).

The company’s profit result of $11.9m for the half year was 5-10% better than the market had expected and has resulted in upgrades to earnings estimates, but there have been no rating upgrades as the brokers to assess the result to date all point to valuation issues as holding them back from being more positive on the stock.

UBS pointed out the result showed the company is able to deliver on its operating leverage, which had been the broker’s key concern regarding the company.

For ABN Amro a highlight was the group’s ability to lift its margins, the broker noting at the EBITDA level margins increased to 64.9% from 61.8% in the previous corresponding period, showing the business is scaleable. Macquarie took a similarly positive view in highlighting the fact revenue growth is translating into margin gains, a trend that should be sustainable as the company grows its operations in markets such as Asia and Europe.

Following the result all three brokers lifted earnings estimates, UBS increasing its earnings per share forecasts this year by 6.1% to 12.2c and in FY08 by 6.9% to 16.7c, while Macquarie’s FY08 forecast has increased 8% to 16.23c.

ABN Amro stands at 11.3c and 15.1c respectively after lifting its forecasts 1.7% and 8.7%, while median earnings per share forecasts according to Thomson One Analytics are 11c and 15c.

While the earnings growth looks good ABN Amro highlights the valuation question by pointing out the stock at current levels is trading at 39x this year’s earnings. Macquarie agrees, noting while earnings are now catching up with the share price valuation remains the major issue.

The three brokers have maintained their Neutral ratings on the stock, while the FNArena database shows Aspect Huntley has a similar rating but has yet to update its estimates following the profit result. The average price target in the database is $4.75, which is up from $4.33 prior to the result and compares to a median price forecast according to Thomson One of $4.28.

Shares in Wotif.com are stronger today, as at 1.50pm the stock was 16c higher at $4.58.

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