Australia | Jun 25 2008
By Greg Peel
On-line discount accommodation service Wotif.com ((WTF)) had been a spectacular star ever since its oversubscribed listing in 2006. But since doubling its initial traded price, Wotif has succumbed along with everyone else to the pressures of the credit crunch. When the balloon’s going down, investors tend to jettison their smaller, newer, and more esoteric investments first.
This hasn’t stopped analysts remaining generally keen on the company in the wider scheme of things. After all, a last-minute discount booking service has some defensive quality over more expensive planned-ahead business trip or holiday bookings. And analysts had become used to Wotif management’s conservative guidance and constant profit upside surprises. But then one day the boy wood have to cry “wolf”.
So it was that this time a trading update from Wotif came in with renewed guidance that was some 3-4% below consensus. Never mind that that guidance was for 30% profit growth in the year – a pretty impressive result in this environment. The reality is, as Merrill Lynch was prepared to admit, “consensus had been too optimistic given Wotif’s history of surprising on the upside”.
As a small company, Wotif is one of those that major broking houses tend to revisit only occasionally during the year for analysis updates. These occur only around profit results, or guidance updates such as yesterday’s. So the news gave analysts a chance to have another close look at the company.
What they have found is a company that Macquarie describes as “high quality with a strong medium term growth outlook.” The fact is that Room Nights Sold continue to grow at mid to high percentage levels and even Room Rates were 5% higher as of May, despite economic weakness. Wotif’s business model is still a sound one, but one must concede that it’s going to be tough to outperform in the current discretionary spending environment.
So it’s a case of analysts reducing their earnings forecasts, and doing so with a more conservative view on FY09. Most have lopped off about 3-5%, although ABN Amro has taken down its previously ambitious FY09 forecast by 15%. It’s also a time to reassess targets, some of which had become a bit cobwebbed. Thus the FNArena database shows a fall in average target from $4.70 to $3.91, with the shares trading at around a dollar lower still.
They are now, incidentally, as low as they’ve ever been.
One to put away for more sunny days, is the general consensus. Nothing much is going to excite for a while. The current B/H/S ratio is 1/4/0.