The Webjet Limited (ASX:WEB) share price could be an opportunity for investors because of a few different reasons, like pent-up demand.
The post 3 reasons why the Webjet (ASX:WEB) share price could be an opportunity appeared first on The Motley Fool Australia. –
There are a few different reasons why the Webjet Limited (ASX: WEB) share price could be an interesting idea at the current value.
The ASX travel share has been through a lot of disruption over the last 15 months because of COVID-19 impacts.
What’s happening right now with the Webjet share price?
In the last few weeks the Webjet share price has been falling as it seems increasingly likely that Australia’s international borders are going stay closed longer than expected.
Since 18 March 2021, the Webjet share price has declined by 17%. However, there has been a recovery since the announcement of the efficacy of the COVID-19 vaccines that are now being distributed around the world.
Investors recently got an insight into the business’ performance and where it sees things going for the coming months. The FY21 report release showed why investors could be positive on the Webjet share price:
Webjet is going through its transformation strategy with WebBeds, its business to business segment. Whilst bookings improved in the second half of its financial year, there are still large-scale restrictions in place in most regions.
But Webjet managed to reduce costs by 42% over the nine month period, reflecting a reduction of headcount and overheads.
The transformation strategy initiatives are on track to deliver at least 20% greater cost efficiencies at scale, which will further cement WebBeds as the clear lowest cost global player, according to management.
Previously before COVID-19, WebBeds was aiming for an earnings before interest, tax, depreciation and amortisation (EBITDA) margin of 50%. This would occur with revenue being 8% of total transaction value (TTV) and expenses being 4% of TTV.
However, it now has a new target of expenses being just 3% of TTV, which would lead to an EBITDA margin of 62.5%.
Profitable online travel agency (OTA)
Webjet’s OTA reported that in FY21, being the nine months to 31 March 2021, it saw positive EBITDA of $4.1 million thanks to significant bookings growth in the second half of FY21.
Profitability is increasing as time goes on. The first half (being six months) EBITDA was $1.1 million and the second half (three months) saw EBITDA of $3 million.
The EBITDA margin in the first half was 9.7% whilst the second half EBITDA margin was 30.9%.
Webjet believes that there is strong pent-up demand for travel, particularly with leisure travel.
The ASX travel share has retained its global footprint and diverse customer base. This will allow it to capture demand when international borders open.
With the OTA business, it said that in April 2021, Australian domestic flight bookings were 95% of April 2019 levels.
The management remain hopeful that vaccines will allow travel markets to reopen. With WebBeds, the US market is opening up fastest, TTV is already at 83% of April 2019 volumes.
All businesses, including Online Republic, are seeing increased bookings and profitability month over month during the 2021 calendar year.
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