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The Webjet share price is dividing analysts even as it becomes a likely takeover target

Tug of War

There are many reasons why the Webjet Limited (ASX: WEB) share price will be in the spotlight in FY21 as it emerges from the COVID-19 baptism of fire!

The online travel agent will likely keep investors on the edge of their seats as its one of the most divisive stocks on the S&P/ASX 200 Index (Index:^AXJO) and could be a star player in mergers and acquisitions (M&As).

Of course, Webjet isn’t the only one in the travel sector to be hit hard by the coronavirus outbreak.

The Flight Centre Travel Group Ltd (ASX: FLT) share price and Qantas Airways Limited (ASX: QAN) share price have copped a beating, but it’s Webjet that’s splitting the experts.

It seems Flight Centre and Qantas are easier calls. Brokers are overwhelmingly recommending investors sell Flight Centre and buy Qantas, according to data on Yahoo Finance.

Consensus divided over Webjet

But in the case of Webjet, they are equally split between “buy” and “hold or sell” after the group received a €100 million ($162 million) cash injection through the issue of convertible notes.

The key point of contention is the uncertainty over when state and international borders will reopen, even though Webjet bought itself time through the convertible notes and the emergency $346 million capital raising in April.

A bull’s view

UBS is a bull when it comes to Webjet. The broker upgraded its price target to $5.35 from $3.75 a share and reiterated its “buy” recommendation on the stock on Friday.

“A high degree of uncertainty still remains around the travel market recovery, which will likely create a more volatile share price in the short-term,” said the broker.

“However, we continue to believe the high quality, well-capitalised players like WEB will take share and potentially acquire good businesses at discounted prices.”

Better placed than its peers?

UBS is feeling confident about Webjet’s future as the group aims mainly at leisure travellers who can easily substitute locations for holidaying. State border restrictions are lifting bar Victoria, but even then, all states are likely to allow border crossings in the not too distant future.

Further, there’s talk that Australia and New Zealand may form a travel bubble by September and this will open another market for Webjet. If travellers can’t go to Bali, they can head to Cairns or somewhere in New Zealand.

A bear’s view

However, some brokers like Morgan Stanley aren’t so sure. The extra cash from the con notes may give Webjet ammunition to make an opportunistic acquisition or two (so says management), but Morgan Stanley is taking a dim view of the move.

“Talk of meaningful M&A [merger and acquisition] following a c. 150% dilution event when cash burn is still close to peak levels seems optimistic,” said the broker.

“We feel that risks around receivables, working capital unwind and prolonged disruption are the main issues, and that balance sheet protection is the priority.”

Morgan Stanley prefers the Corporate Travel Management Ltd (ASX: CTD) share price over Webjet.

Webjet a takeover target?

As an aside, it’s also worth noting the hunter could be the hunted. Takeover speculation for Webjet was running rife in late 2019.

One has to wonder if potential bidders could come out of the woodwork amid the chaos, especially now that Webjet is cashed up.

Stranger things have happened!

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Motley Fool contributor Brendon Lau owns shares of Webjet Ltd. Connect with me on Twitter @brenlau.

The Motley Fool Australia owns shares of and has recommended Corporate Travel Management 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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