Why the Webjet share price crashed 8% lower

The Webjet Limited (ASX:WEB) share price crashed lower on Thursday. Here’s why…

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The Webjet Limited (ASX: WEB) share price was the second-worst performer on the S&P/ASX 200 index behind IDP Education Ltd (ASX: IEL) on Thursday.

The online travel agent’s shares dropped 8% lower to $12.70 compared to a 10% decline by the education services provider.

Why did Webjet’s shares sink lower?

Webjet’s shares came under pressure on Thursday following the release of its results for the 12 months ended June 30.

In FY 2019 Webjet reported a record performance across all its key metrics. Total Transaction Value (TTV) came in 27% higher at $3.8 billion, revenue grew 26% to $366.4 million, and net profit after tax was up 46% to $81.3 million before acquisition amortisation.

The company also announced a fully franked final dividend of 13.5 cents per share, bringing the total dividend for the year to 22 cents. The latter was an increase of 10% on FY 2018’s dividend.

The key driver of its growth in FY 2019 was its WebBeds business. After just over 6 years since launching it in the Middle East, its global business is now delivering over $2 billion in TTV. Management also revealed that it continues to gain market share, which has allowed it to consolidate its position as the number 2 global B2B player.

This increased size and scale is allowing the company to focus on pursuing more profitable growth, resulting in higher TTV and EBITDA margins coming through in all regions.

The WebBeds business reported a 51% lift in bookings, a 59% increase in TTV, and a whopping 148% jump in EBITDA.

Pleasingly, the business has started FY 2020 very strongly and looks set to underpin further strong growth in the year ahead.

CEO John Guscic said: “The first 6 weeks of trading have shown a strong start to FY20. WebBeds TTV is up over 50% compared to the prior corresponding period, Webjet OTA TTV is up 9% and Online Republic TTV is up 4%. As well as driving organic growth in all our businesses, we have a strong pipeline of acquisition opportunities. We will be providing a guidance range at our AGM on 20 November 2019.”

So why did its shares crash lower?

Given the strength of its result and its positive outlook, it will have come as a bit of a surprise to see its shares sink lower. Especially with rivals Flight Centre Travel Group Ltd (ASX: FLT) and Helloworld Travel Ltd (ASX: HLO) charging higher after their results releases.

I suspect concerns over its partnership with Thomas Cook are to blame for the share price weakness.

In its investor presentation management explained: “In light of the issues currently impacting Thomas Cook, we have revised TTV expectations and now expect FY20 TTV from Thomas Cook to be between $150-200 million (down from $300-450 million at 1H19).”

This ultimately led to management downgrading its WebBeds earnings estimates. It said: “We expect between $27 to $33 million additional EBITDA in FY20 (revised from at least $40 million at 1H19).”

Whilst this was largely expected by many in the market, there may be concerns that further downgrades could be made if the Thomas Cook business performance continues to deteriorate.

However, I would argue that this is an overreaction and has left Webjet’s shares trading at a very attractive price.

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Helloworld Limited. The Motley Fool Australia owns shares of and has recommended Flight Centre Travel Group Limited. The Motley Fool Australia has recommended Helloworld Limited and 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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