Treasure Chest: The WebBed Opportunity For Webjet

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FNArena's Treasure Chest reports on money making ideas from stockbrokers and other experts. Today's idea is on Webjet.

By Mark Woodruff

Whose Idea Is It?

Analyst at Jarden

The subject:

Brokers were overwhelmingly positive and raised 12-month target prices for Webjet ((WEB)) a fortnight ago following FY23 results, though some had reservations about the company’s exposure to a decline in consumer spending.

New research released by Jarden today suggests the overall business is well positioned to overcome this headwind via its global penetration opportunity.

The analysts believe Webjet should trade at a premium as it is building a genuine global business with high returns and high barriers to entry.

The company has two key business units. Business to Consumer (B2C), which consists of Webjet, Australia’s number one online travel agency (OTA), and GoSee, a consolidated marketplace for car and motorhome rentals in A&NZ.

The company’s Business to Business (B2B) operation is called WebBeds, which Morgans notes is the world’s second largest and fastest-growing accommodation supplier to the travel industry.

The opportunity for Webjet increasingly resides with WebBeds, which Jarden forecasts will account for more than 85% of group earnings by FY26.

As a result, Webjet is becoming a B2B platform which has positive implications for valuation, explains the broker, when comparisons are made with global peers.

In anticipation of valuation upgrades by consensus, Jarden increases its rating to Overweight from Neutral, and stays with its $8.15 target price.

If WebBeds were to trade at an around -50% discount to global B2B platform peers, and the balance of Webjet’s operations trade in line with OTA peers, the broker arrives at an implied share price north of $9.00.

Moreover, Jarden’s valuation model arrives at a $2.00 higher target (than $8.15) when the broker assumes success for management’s longer-term total transaction value (TTV) aspiration for WebBeds of over $10bn. It's thought the key to reaching this target consists of US penetration and lifting conversion rates.

More info:

Following FY23 results, Ord Minnett pointed out Webjet invested in consolidating convergent systems and improving the quality of its technology during the pandemic, at a time when competitors were struggling to survive.

Thus, the analyst suggested investors should not be surprised the B2B division is emerging as a serious player with scale.

A compound annual growth rate (CAGR) for revenue and earnings of around 15% and 19%, respectively, was forecast for B2B between FY23 and FY32, and the broker raised its TTV estimate to $10bn from $7bn by FY32.

Citi also noted Webjet’s B2B business produced a strong FY23 result in a favourable environment.

Interestingly, instead of seeing price reversion headwinds, the latter broker pointed out that as prices were falling, length of stay was actually increasing, as shown by TTV growing by over 40% for Wedbeds, compared to Bookings growth of 35%.

Citi considered this outcome was part of a global trend with revenue per available room (RevPar) accelerating, despite the mean reversion in prices.

FNArena's daily monitoring consists of five brokers who actively cover this company; four have a Buy (or equivalent) rating. At the time of FY23 results, Morgan Stanley reiterated its Equal-weight recommendation based on valuation concerns and looming consumer headwinds for the B2C segment.

The average target price in the database is $8.69, which suggests 20.2% upside to the latest share price.

Jarden and Goldman Sachs are not monitored daily. The latter broker has a $7.40 target and recently noted the B2B business was the key rationale behind its Buy rating. As mentioned, Jarden has today upgraded to Buy with a price target of $8.15.

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