Small Caps | 10:03 AM
WEB Travel has downgraded revenue margin guidance for the second time in four months, raising questions of whether there are structural issues in the once buoyant European region.
-WEB Travel downgrades revenue margin guidance, again
-Europe the major culprit
-Forecasts slashed across the board
-Longer term valuation/optimism relies on sustainable margin
By Greg Peel
Late in September, Webjet implemented a demerger of its business-to-business and business-to-consumer divisions into two separate entities. The move was overwhelmingly approved by shareholders.
The B2B division became WEB Travel Group ((WEB)), specialising in the wholesale hotel bed bank market (WebBeds). The B2C division became Webjet Group ((WJL)), the online travel agency (OTA). Brokers applauded the opportunity for the much larger WEB Travel to unlock value and re-rate, while the smaller Webjet would benefit from greater focus.
A majority of brokers rated WEB Travel as a Buy, with the others on Hold. It didn't take long, nonetheless, for the wheels to start falling off.
At the Margin
In FY23 and FY24, when the two divisions were still part of the one company, the B2B division delivered revenue margins of 8%, which was in line with pre-covid levels. At the company's March strategy day, management offered FY26-26 revenue margin guidance of 7.0-7.5%.
At the AGM in August, margin guidance of 7.0% was provided. This week, first half FY25 guidance has been lowered to 6.4%.
WebBeds' total transaction value (TTV) is up 26% year on year, in line with forecasts, yet margins are materially lower at 6.4%, below consensus of 7.1%. Implied first half FY25 revenue of $168m represents -10% downgrade to consensus. A first half FY25 earnings margin of 44%, versus 52% a year ago, implies a -22% miss of consensus.
Operating expenses are up 15% year on year, 2% above consensus with the second half expected to be in line with the first. There was no mention of any change to a goal of $5bn of TTV by FY25.
The deterioration in WEB Travel's margins in such a short period of time couldn't make the timing of the demerger worse, says Morgans, especially given it introduces additional costs. Whereas mergers bring about synergy opportunities in administration, demergers imply dis-synergies as administration is replicated.
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