Why Webjet shares will be ready for takeoff when travel resumes
Webjet is a technology business which holds the position of being Australia and New Zealand's largest online travel agency. The company floated on the ASX in 2000 and has since increased its offerings to provide the tools and technology to compare, combine and book not only domestic and international flights, but also hotel accommodation, holiday packages, travel insurance, and car hire through brands such as Webjet, Webbeds and Online Republic.
Webjet provides flight alternatives from all major airlines, accommodations from around 730,000 hotels worldwide and car hire from around 800 suppliers in over 30,000 locations.
Large Cash Position Provides Confidence Amidst COVID
COVID has understandably impacted the company heavily across all business arms, with large drops in revenues and earnings for the second half of FY20 and the first half of FY21. That said, a capital raising and strong balance has instilled confidence particularly the cash holding, which was reported as $283 million as of December 2020. This figure alone means very little until it is brought into context and in Webjet's case, the fact that their monthly cash burn has been reduced to $4.8 million, confirms the ability to carry on with these current costs far longer than COVID is expected to linger.
With domestic travel already picking up, a vaccine rolling out globally and expectations of international travel to return around the end of 2021, we see this cash holding as more than enough to weather the storm for the eventual return to normality which is slowly beginning to take place as shown below.
Travel Incentives, Savings and Pent Up Demand to Drive Tourism Bounce
It is important to look at the tailwinds which exist for the tourism industry and therefore a company like Webjet. Not only is there a large amount of pent up holiday demand from an Australian and global population which has been under various levels of travel restrictions for over 12 months now, in Australia at least, we have also seen deposits into savings accounts by households increase by more than $100 billion as of the end of November 2020.
Add these high household savings levels and pent up demand to the vaccine rolling out and a recent government incentive to offer 50% off domestic flights to selected destinations, these should all provide a favourable environment for the tourism industry to flourish looking ahead.
Longer Term Fundamental Strength For a Logical Re-opening Play
While the FY20 and FY21 financials understandably don't paint a strong picture for Webjet, the business had been tracking consistently well before COVID and we'd expect this to logically return to being the case post-COVID. The five years leading into COVID saw generally consistent sales and revenue growth, with earnings and dividends close to doubling over the period.
Given the combination of high cash holdings bringing the ability to weather the storm, strong longer term fundamentals and currently trading at a heavy discount, we see this as an opportune time to invest in a stock where the negative news appears to be priced in as positive tailwinds being to increase.
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