Australia | Oct 27 2010
By Chris Shaw
Yesterday FNArena noted the market remains divided on the outlook for Wotif.com ((WTF)), with uncertainty over earnings growth expectations from the second half of FY11 accounting for much of the disparity in views (see: Is Wotif Now Cheap Or Too Expensive Still?, 26/10/10).
Today Commonwealth Bank has added its view, continuing to rate Wotif.com as a Sell post the company's earnings update included in management's annual general meeting commentary.
For Commonwealth Bank domestic room night growth is a concern, as outlook commentary indicated this is likely to be negative in the first half of FY11. While medium-term there should be an improvement, the bank is below some expectations in the market given its view a significant portion of Wotif.com's potential market is already booking rooms online.
Wotif is attempting to grow its product offering by initiatives such as a further extension of the booking window, Wotflight and user reviews. Commonwealth Bank also notes acquisitions are likely to try and complement the current earnings growth profile.
Commonwealth Bank has lowered its earnings forecasts for Wotif by 2% this year and by 3% in FY12. This reflects a lowering of domestic room night growth assumptions in FY11 to 3% from 4% previously, as well as an increase in its expenditure assumptions to account for higher marketing and IT spending (a point highlighted by other stockbrokers as well).
In earnings per share (EPS) terms Commonwealth Bank is forecasting 24.9c in FY11 and 28.1c in FY12, which implies a minor fall in earnings this year given EPS in FY10 was 25.3c. As a comparison, consensus EPS forecasts for Wotif.com according to the FNArena database stand at 25.7c in FY11 and 29.7c in FY12, so Commonwealth Bank is below market with its updated estimates.
The reduction in its earnings forecasts sees Commonwealth Bank lower its price target on the stock to $4.40 from $4.60. This is enough to justify a Sell rating as while Wotif.com is seen as a fantastic business, the shares are simply expensive at current levels in the bank's view.
The consensus price target for Wotif.com according to the FNArena database is $4.87, with BA Merrill Lynch the low with a target of $3.65 and JP Morgan the high mark with a target of $6.13. The database shows Wotif.com is rated as Buy twice, Hold five times and Sell once.
Shares in Wotif.com today are weaker and as at 11.25am the stock was down 8c at $4.68. This implies upside to the consensus price target in the FNArena database of around 3.7% but is above the revised price target of Commonwealth Bank.
