Webjet consumer arm not the ‘black sheep’ markets say, as Ord Minnett rates group a buy

As shareholders prepare to vote whether to demerge the Webjet, market watchers say its consumer-facing business is not the black sheep that some believe.

Webjet’s consumer travel business needs a polish and is not the black sheep some suggest it to be, according to Ord Minnett.

Webjet stock is a strong “buy” ahead of next week’s planned vote to split the digital travel business into two.

Broker Ord Minnett says concerns that the online travel group’s consumer arm is the black sheep is overplayed and is instead a gem that needs a polish.

Market watchers believe the demerger could unlock up to $2bn to Webjet’s overall $3bn value.

If shareholders on Tuesday back the split, the existing Webjet will be renamed WEB Travel Group and house its WebBeds and global B2B travel distribution businesses, while the business to consumer holdings, including its Webjet travel booking website, will list on the ASX as a new company named Webjet.

Ord Minnett’s John O’Shea and Patrick Cockerill said the business-to-business unit, WebBeds, would trade at a range of 15 to 25 times its earnings before interest, tax, depreciation and amortisation (EBITDA) on a valuation basis including debt, otherwise known as its enterprise value.

“It seems ironic to us that B2B, a much-misunderstood business, now appears a market darling,” Ord Minnett said.

“If we assume a post demerger FY25 EBITDA of $175m and net cash of $303m, our indicative valuation for B2B (shares) equates to $7.49-$11.96 (average $9.70).

“We have downgraded our EPS estimates for the old Webjet by 14 per cent in FY25 to reflect demerger costs and lower assumed B2B margins. Our target price has increased to $10.99 given we have moved to an enterprise value (EV)/EBITDA multiple methodology post demerger.”

The split of the existing Webjet goes to a vote on Tuesday.

Webjet shares rose 3c to $7.51 on Friday but are off almost 6.8 per cent over the past month.

With 391 million shares on issue once split, and $60m of Australian available debt, the group could have a value range of between about $2.9bn and $4.7bn.

WebBeds has faced challenging conditions this financial year following poor European trading in June and July after the collapse of FTI Group, which resulted in about $2bn worth of hotel inventory distorting the market and impacting margins. It now expects $5bn in total transaction value (TTV) for the financial year, which is less than the consensus forecast of $5.1bn.

The B2C unit has been regarded by Ord Minnett as “a gem that needs a polish”. Mr O’Shea and Mr Cockerill said the market took the view it did not have the same growth opportunities and was the “black sheep” of the group.

“We consider these views overplayed given our analysis points to an indicative FY25 EV/EBITDA multiple of 7-11x. If we assume a post demerger FY25 EBITDA of $45m and $91m in net cash, our indicative valuation range of B2C equated to $1.04-$1.50 (average $1.27).”

Webjet’s consumer business, to remain with the name Webjet, will have 392 million shares on issue with $70m of available debt once split, and based on the analyst numbers, its market value could be $408m-$588m.

Mr O’Shea and Mr Cockerill have retained a buy on Webjet with the demerger a key catalyst for investors to buy shares now.

Webjet cautioned last month that online travel bookings are down because of cost-of-living pressures, with bookings at its online travel agency business down 5 per cent this fiscal year and TTV lower by about 10 per cent.

The figures were much less than the 4.7 per cent growth in bookings for the first half forecasted by markets and 0.5 per cent in TTV. Webjet’s financial year runs from April 1 to March 31.

Originally published as Webjet consumer arm not the ‘black sheep’ markets say, as Ord Minnett rates group a buy