It has been an eventful couple of weeks for Web Travel Group Ltd (ASX: WEB) shares.
At the end of September, the company spun off its consumer business into a separate listing, Webjet Group (ASX: WJL).
This leaves Web Travel with its rapidly growing WebBeds business to business (B2B) travel distribution business.
Whereas Webjet is now home to the Webjet online travel agency business, which is the number one online travel agency in Australia and New Zealand, and GoSee, a global travel e-commerce group that specialises in car and motorhome rentals.
Goldman Sachs has been running the rule over both companies and thinks investors should be snapping them up.
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3 reasons to buy Web Travel shares
In respect to Web Travel, Goldman has reinstated coverage on its shares with a buy rating and $8.20 price target. This implies potential upside of almost 20% for investors from current levels.
Goldman has named three reasons why it thinks the WebBeds owner is a buy. The first is its robust growth and opportunity in a highly fragmented industry. It said:
WebBeds is the #2 player with an estimated share of 5% in FY24 against a robust hotel wholesale industry with targeted 7.7% 2023-27e industry CAGR (Euromonitor) with still high fragmentation. We expect WEB to gain share to 7% by FY27e on a combination of scale and push into APAC/US regions, continued reinvestment into services/tech and refocus on HTML products.
Another reason to be positive is its potential to double its total transaction value (TTV) by the end of the decade. It adds:
We estimate WebBeds to deliver ~15% TTV CAGR from A$5B in FY25e to A$10B in FY30e on a combination of higher mix from faster growing APAC/US regions, reaching ~59% of sales by FY27e and higher traffic conversion, partially offset by moderation of revenue margin to ~7.2%.
Finally, Goldman likes Web Travel due to its industry leading profitability. The broker explains:
EBITDA/Revenue margin remains strong at ~50% with operating leverage from focus on higher traffic conversion partially offset by reinvestment into services/tech. WebBeds has industry leading profitability at 4.1% EBITDA/TTV margin.
Buy Webjet shares too
According to another note, the broker has initiated coverage on Webjet's shares with a buy rating and $1.05 price target. This implies potential upside of over 9% for investors.
As with Web Travel, it has named three reasons to be positive on Webjet. It said:
WJL is ANZ's largest OTA in terms of market share and we believe the company is well placed to grow TTV and revenue margins, supported by 1) continued market shift from offline to online travel bookings (Euromonitor 2024-29e forecast online bookings +6.8% vs offline +4.9%); 2) optimize shape of revenue envelope by driving higher mix from international travel and higher margin ancillary services; resulting in revenue margin +26bp over FY24E-27E to 9.0%; and 3) step-up loyalty and exclusive members' offerings to drive frequency and lower cost of conversion for 5.5mn platform members.
That said, we expect FY25E to be a year of digestion with +0% booking and -5% TTV growth, reflecting airfare price declines, before more normalised 3.5% booking growth from FY26E onwards.
