Could the Webjet Limited (ASX: WEB) share price be a buy right now?
The Webjet share price has fallen by 10% since 8 February 2021.
What has happened recently?
Over the last week the state of Victoria went from having 0 community COVID-19 cases for almost a month, to now having 20 active cases, with potentially all of them being the highly infectious UK strain of the coronavirus.
The whole of Victoria is now in a 5-day lockdown to act as a "circuit breaker" against the spread of COVID-19. Victoria is now in stage 4 restrictions, which will see people only be able to leave for four reasons: essential work, exercise, care and caregiving and shopping for essential supplies. The exercise and shopping will be allowed for a 5km distance from home. Masks will need to be worn everywhere except in your own home, with no visitors.
This relates to Webjet because lots of people's travel plans into and out of Victoria will have been disrupted by this latest setback.
How has Webjet fared since the onset of the COVID-19 pandemic
In October, the company held its annual general meeting (AGM).
It reminded investors that it achieved a record FY20 first half result and provided full year guidance for earnings before interest, tax, depreciation and amortisation (EBITDA) of $162 million to $172 million. At the time, when COVID-19 was emerging in Asia, the travel industry's previous experience with SARS and MERS pointed to a six-month recovery period.
Full year FY20 total transaction value (TTV) was down 21% on the prior year at $3 billion, revenue was down 27% to $266.1 million and underlying operating EBITDA dropped 80% to $26.4 million.
To tackle this, Webjet reviewed its strategy, people, technology, operating costs, investments and the balance sheet. It raised capital to ensure its survival. That involved raising $346 million for Webjet at a share price of $1.70 per new share. The money was used to strengthen the balance sheet and support the unwind of negative working capital and reduction of debtor exposure.
The company has been working on putting the building blocks in place to win market share and be more profitable in all its businesses so that's it's well placed when travel markets do open.
Webjet's WebBeds transformation strategy is aimed at becoming the number one global player in the business to business (B2B) space. It's also aiming to do well in the domestic travel market until international markets open again.
Webjet worked hard to reduce costs to around half (50%) of the previous level from a mix of job reductions, four-day working weeks and pay cuts, as well as reductions in other operating expenditure. The Webjet exclusives and Online Republic cruise businesses were closed.
Is the Webjet share price a buy?
There is a mix of views. Ord Minnett thinks Webjet shares are worth a buy, it has a price target of $5.65 on the travel business because of sound fundamentals and a return to a more reasonable valuation.
However, Morgan Stanley has a price target of $3.40 for Webjet because Webjet has a harder path to making profit than competitor Corporate Travel Management Ltd (ASX: CTD). Webjet also is more reliant on the international border to open and vaccines to be distributed.
