Webjet Limited (ASX: WEB)

Leyland Private Asset Management

Established in 1998, Webjet is the leading online travel agency (OTA) in Australia and New Zealand, leading the way in online travel tools and technology. Webjet says its focus has always been to offer the greatest convenience and choice by enabling customers to compare, combine and book the best domestic and international travel deals – including flights, hotel accommodation, holiday package deals, travel insurance and car hire worldwide.

Their core business is the Australian online flight search site. Many people use this as a ‘billboard’ to compare flights, then book directly with the airlines to save on booking costs. Although this is an issue for the company, it is largely mitigated by Webjet relying on only a fraction of customer conversion. Webjet is at the forefront of online innovation – from the world’s first Travel Services Aggregator technology through to leading the industry in blockchain innovation. The full year results are due to be reported on 31st Aug (after writing this article), however, the business delivered strong results in the first half which are expected to be repeated. At the half year, WEB growth continued to outperform the market by more than 5 times. All other metrics were also strong.

Online Republic

Online Republic was acquired in May 2016 to leverage Webjet’s core capabilities into attractive complementary travel segments. The company is a market leading global e-commerce group based in New Zealand specialising in online bookings of rental cars, motorhomes and cruises. Airportrentals.com and Motorhome Republic are leading players in global online bookings for car hire and motorhomes and Cruise Sale Finder is the leading Australasian online cruise agency.

B2B Travel – WebBeds (trading as Lots of Hotels, Sunhotels and FIT Ruums depending on geography)

The B2B Market

Webjet established it’s Business to Business (B2B) travel business – known as WebBeds – in 2013. The global B2B market is estimated to generate Total Transaction Value (TTV) of more than $50 billion and involves the fulfillment of hotel bookings for a range of travel providers including travel agents, brokers, tour operators and OTAs.

What is WebBeds?

Unlike the Business to Consumer (B2C) business which provides services direct to the consumer market, the B2B business helps wholesale players fulfil accommodation requirements for their consumers. WebBeds sells hotel rooms to Webjet partners via the online channel and plays a key role as intermediary between travel providers seeking to fulfil accommodation requirements for their consumers and the 250,000+ hotels globally seeking to manage their occupancy rates. WebBeds provides a simplified business tobusiness solution that aims to offer the widest range of inventory at the lowest prices. Webjet operate a unique multi-supply aggregation strategy that allows sourcing hotel rooms from a variety of suppliers. In addition to directly contracting room allocations with key hotels (ranging from independent hotels through to global hotel chains), Webjet also use a wide range of third party suppliers. This approach allows the greatest breadth and depth of hotel room inventory to webjet customers. The low cost structure enhances their ability to offer inventory at attractive prices.

Growth Strategy

Webjet aim is to be a leading global B2B player. As businesses continue to grow in each region, Webjet is able to crosssell inventory offerings between the various businesses. This provides the broadest range of distribution capability to hotel partners, and delivering the broadest range of choice to agency partners.

Jactravel Acquisition

Webjet has recently raised $164million to buy Jactravel for $AUD330million. The balance sheet strength of Webjet allowed for this acquisition to be funded largely though cash and a small amount of debt ($145m), as well as a share placement of $29m to the vendor. Given that relatively few shares were required to be issued, dilution is limited, and it is anticipated this acquisition will be EPS accretive from day 1. Jactravel is a market leading European B2B travel business earning approximately $AUD30million. When Australian companies buy overseas businesses we have seen many problems arise over history and this is, of course, a risk as is currency moves, taxation changes, competition etc etc.

Highlights of the Webjet story include:

1. Averaging 25% earnings per share growth per annum.

2. Just raised capital at $10 per share to buy Jactravel in Europe. Earnings per share accretive.

3. One of the biggest online sellers in the world.

4. Share price has pulled back from around $13 to approx. $11.10 after the capital raising

5. Very low debt.

6. Price earnings ratio falling from 25 to 18. This appears very cheap compared to the historic and future exciting growth potential.

7. One of the stocks that would be positively impacted by ‘cryptocurrency” growth.

8. Webjet reports 31 August. (this article is prepared pre report)

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