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Is it time to dump Flight Centre Travel Group Ltd for Webjet Limited?

There aren’t many stocks trading in the black today but Webjet Limited (ASX: WEB) has managed to wow investors with its trading update this morning.

Shares in the online travel booking site jumped 5.3% to $3.21 after management said that total transaction value (TTV) has surged 41% to $646 million for the six months to end June 2015, compared with the same period last year.

TTV refers to the value of transactions processed across Webjet’s websites and the biggest contributor to the strong result was its accommodation booking business that includes its Lot of Hotels and SunHotels brands.

This division generated a TTV of $105 million for the second half of the financial year, compared with $32 million in the previous corresponding period, although the big jump is primarily due to the recent acquisition of SunHotel.

Nonetheless, this is a pleasing result given that its core Webjet business saw a 28% increase in TTV and its ZUJI business (which was acquired two years ago) delivered a 19% increase in transaction value for the period.

The growth in the business stands in contrast to the profit warning issued by rival Flight Centre Travel Group Ltd (ASX: FLT).

As I mentioned before, I think there’s more room for Flight Centre to underperform and investors will be better off switching to Webjet on the back of today’s update as there’s plenty of space for the gap between the two stocks to widen.


What’s more, Webjet has managed to hold margins despite having to invest more heavily in growing market share, making incentive payments and taking a $2 million hit from unfavourable currency movements.

Webjet is reaffirming its 2014-15 earnings before interest, tax, depreciation and amortisation (EBITDA) guidance of $27 million and the stock looks like a buy to me for a few reasons.

Firstly, fears that Webjet lacks scale and cannot effectively compete with larger offshore rivals like Expedia look overblown.

The other is valuation with Webjet trading on a consensus price-earnings multiple of under 12x for 2015-16 even after this morning’s price surge.

Given its double-digit growth rate, I think there’s at least another 20% upside to the stock.

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Motley Fool contributor Brendon Lau has no position in any stocks mentioned. Follow me on Twitter -

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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