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Why the Webjet Limited share price is soaring today

Credit: Joits

Shares of Webjet Limited (ASX: WEB) have soared more than 11% this morning after the travel company resumed trading following a two-day trading halt.

The company, on Monday, announced it would acquire Online Republic, a market leading business to consumer (B2C) business based in New Zealand for NZ$85 million.

Online Republic has shown strong levels of growth over the past three years (highlighted in the chart below) and Webjet expects the company can grow in line with Webjet’s B2C EBITDA compound annual growth rate (CAGR) target of at least 10% over the next five years.

Source: Company Presentation

Source: Company Presentation

Unlike Webjet’s core flight booking service, Online Republic specialises in car rentals, motorhome rentals and cruise packages. Importantly, Online Republic holds either the number one or two market positions in each of the segments.

Investors are clearly pleased with the deal which will see Webjet significantly diversify its current revenue streams as highlighted in the slide below.

Source: Company Presentation

Source: Company Presentation

Webjet is confident it will be able to leverage its current market position into these new segments which generally offer better margins and yield compared to the highly competitive airline market.

Importantly for investors, the acquisition is expected to be double-digit earnings per share (EPS) accretive in FY16 on a pro-forma basis, before synergies.

The acquisition will be funded through a $72.5 million entitlement offer and $17.1 million share placement to the vendors of Online Republic.

From these proceeds Webjet intends to retain $7.7 million for future growth opportunities.

Separate to the acquisition, Webjet also provided a trading update to the market that re-affirmed the company’s previous guidance. The company has continued to see strong bookings growth in its B2C and business to business (B2B) division with total transaction value (TTV) growing at around 28% p.a.

The strong performance of Webjet has raised questions about the recent poor performance of one of its main rivals in Flight Centre Travel Group Ltd (ASX: FLT). Both companies are directly exposed to consumers in Australia, yet each company is painting a different picture of what they are experiencing in the travel market.

This is also showing up pretty clearly in the share prices of both companies. Amazingly, Webjet shares have outperformed Flight Centre by more than 150% over the past year.

Source: Google Finance

Source: Google Finance

The voices calling for an end to the bricks-and-mortar model employed by Flight Centre are getting louder, but I think it is still a little too early to write the company off just yet.

With that said, there is no doubt that Webjet is delivering on its growth targets and I expect to see its shares continue to be well supported from here.

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Motley Fool contributor Christopher Georges has no position in any stocks mentioned. 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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