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Fund manager names Webjet as an ASX share pick to buy

A fund manager has named Webjet Limited (ASX: WEB) as a top ASX share idea to buy.

Leyland Private Asset Management has chosen the online travel agency business as a well-priced ASX growth idea.

As a reminder for readers, Webjet allows customers to compare and combine the best domestic and international travel deals including flights, hotels, holiday packages, travel insurance and car hire.

Leyland said that Webjet is at the forefront of online innovation, from the world’s first travel services aggregator technology to leading the industry in blockchain innovation.

One of the main reasons Leyland is attracted to Webjet is its aim to become a global leader in the business to business (B2B) space. The more it expands in different regions, the better it can cross-sell inventory offerings between various business. Webjet achieved B2B Hotels booking growth of 214% in FY18, partly due to an acquisition and partly due to the organic growth of 79%.

Leyland also like the Destination of the World (DOTW) acquisition for $240 million which adds to the B2B segment, increasing its presence particularly in Europe and the Middle East.

The investment firm believes that the fall of the share price of around 33% since reporting season is an overreaction. It is not the same as other growth stocks with ultra-high price/earnings ratios that make little to no money.

Leyland has estimated that Webjet will achieve earnings per share (EPS) growth of 65% in FY19 and 44% in FY20. This means it’s trading at 20x FY19’s estimated earnings and 13x FY20’s estimated earnings.

By FY20 it could be offering a fully franked dividend yield of 3.5%, which is a pleasing yield for a growth share that has a conservative dividend payout ratio. I prefer Webjet to Flight Centre Travel Group Ltd (ASX: FLT).

Webjet looks like a quality growth idea at the current price. The only reservation I have is how defensive its earnings actually are in a downturn. If you’re worried about Webjet’s earnings reliability then there could be better ASX shares out there for your portfolio.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Flight Centre Travel Group Limited. The Motley Fool Australia has recommended Webjet Ltd. 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 Scott Phillips.

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