Wotif that was as good as it gets?

The chairman of online accommodation and travel booking website (ASX: WTF) has told shareholders at its eighth Annual General Meeting (AGM) that “accommodation booking growth is not delivering the growth we experienced in the early years of the Company’s development.”

For the financial year 2013, Wotif recorded adjusted net profit after tax (NPAT) of $54.1 million. This result was $2 million lower than FY2013 and roughly flat of the result produced in FY 2010, which largely reinforces the Chairman’s comment that “the end of an era of double-digit growth in accommodation bookings marks a turning point in the development of Wotif.”

To deal with the slowing growth from accommodation bookings Wotif is expanding its online capabilities into other complementary areas including flight bookings and travel packages – this has included success at selling Sydney theatre package products. Given the solid growth in revenues experienced by fellow online travel booking company Webjet (ASX: WEB) — thanks largely to improved margins on flight sales — the move into air travel looks sensible.

Wotif also has its sights firmly set on the Asian region, and announced a hotel content sharing deal with Rakuten. While there is obviously potential in this market it is of course highly competitive as well.

It successfully implemented an increase in the commission rate it receives on hotel booking from 10% to 11%. With the commission set to be progressively increased to 12% from January 2014 this could help to buoy revenues into FY 2014 and FY 2015.

It’s interesting to compare the purely online travel firms with the ‘bricks and mortar’ operations of Flight Centre (ASX: FLT) and Corporate Travel Management (ASX: CTD). Both of these travel agencies produced record earnings and provided strong outlooks for growth when they released their FY 2013 results. Their share prices are also trading near record highs; in comparison, Webjet and Wotif’s share prices are trading close to their 52-week lows.

Foolish takeaway

Wotif’s shares are currently trading at $4.64, and given the lack of formal guidance provided at the AGM it is hard for investors to get a reading on what to expect for FY 2014. Of note however was management’s expectation that sales of flights are expected to be 30% higher in the first half than they were in the prior corresponding period.

Based on data provided by Morningstar, FY 2014 earnings per share are expected to grow 10.4% to 26.5 cents per share (cps), while dividends are expected to increase by 4.3% to 24 cps. On these forecasts, Wotif is trading on a forward price-to-earnings ratio of 17.5 times and a dividend yield of 5.2%.

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

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