The Motley Fool profit to decline

Recently appointed CEO of Holdings (ASX: WTF) Scott Blume has provided a market update and announced that he has completed the strategic review he’d undertaken as part of his appointment. Here’s the news — not all of it good.

Profit guidance

Adjusting for a few ‘one-offs’, is expecting underlying net profit after tax (NPAT) to be between $53 million and $54 million. In comparison, for the financial year ending 30 June 2012, the NPAT was $58 million, while the most recent half year saw NPAT at $27.5 million.

At an underlying level, issues affecting the result include weak trends in the Asia and Rest of World divisions of the company, which has been largely off-set by continued growth in the Australian division but only enough to leave overall transaction value expectations flat year on year. Expenses have also risen at as the company increased spend on marketing and IT.

The announcement was made at 3:15pm yesterday — giving the market just 45 minutes to digest the information. This may mean the company’s share price may come under further pressure today – shares are down some 4% as of this writing.

Shares are now trading on a price-to-earnings ratio of around 17 times. This appears to be a full price to be paying for a stock that is set to report declining year-on-year earnings. That being said, if the company can return to growth, the valuation begins to look appealing.

Strategic review

Part of the reason the market may be forgiving of the high multiple trades on is the potential for growth in revenues as highlighted by the announced strategic review outcomes.

Management believes there are opportunities to monetise traffic from group websites, expand content through direct hotel contracts, renew the marketing strategy, expand further into Asia and improve website functionality through technology developments including mobile and apps.

The strong Australian dollar has helped the travel industry report strong results on the whole, with the share prices of many in the sector increasing strongly as a result. Over the past 12 months the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) has rallied some 16%, however is up about 14%, Webjet (ASX: WEB) 17%, Corporate Travel Management (ASX: CTD) 102% and Flight Centre (ASX: FLT) a massive 106%.

Foolish takeaway

With more and more people traveling either for work or leisure and the internet increasingly being used as a medium to research and purchase travel needs, has the opportunity to benefit significantly.

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More reading

Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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