Doug Goodwille from Kayne Anderson speaks to Drew Meredith from The Inside Network on market thinkers.
While a surging gold price is on hold as the world adjusts to a Trump presidency, all the factors that saw its price rise more than 50 per during his first term in office – trade disputes, fiscal deficits and geopolitical tensions – are almost certainly guaranteed the second time around.
Banking on travel – the bull and bear case for WebJet
The Webjet Limited (ASX: WEB) share price has both positive and negative factors going for it right now. Which one is right?
Webjet is best known for being an online travel agency (OTA). But it also operates the WebBeds business, which is a ‘business to business’ (B2B) company. GoSee is the other business it runs, which is about comparing car rentals and campervan hire globally.
Webjet’s share price difficulties
There have been a lot of false starts for the Webjet share price since the COVID-19 pandemic hit the world. Reopening of borders was meant to be the big restart for travel. But Omicron made that a stuttering restart.
The Webjet share price has fallen almost 10% since 11 February 2022. Oil prices have soared higher as Russia invaded Ukraine.
But what’s next?
The bull case
COVID-19 and all of its variants are shorter-term problems. Investors may not have thought that the pandemic would still be going two years later, though here we are.
But, at some point, the negative impacts of the pandemic should subside. If and when travel volumes get back to pre-COVID levels, that should be a major boost for earnings and the Webjet share price.
What gets me most excited about Webjet in the long-term is the work that it has been doing on its potential market share and the operating leverage.
Webjet says that its WebBeds market opportunity has increased, whilst competition has decreased as financial pressures impact the industry. Customers want easy access to significant content, whilst hotels want global reach in order to fill rooms.
WebBeds has done a number of things to potentially grow its revenue, such as expanding its domestic offering in all regions, increasing its penetration in the large North American B2B market and retained its global footprint and relationships.
The biggest positive for the Webjet share price could be that it’s targeting a greater share of a larger market opportunity. With WebBeds, it’s looking at winning $10 billion of total transaction value (TTV), which would be a 14% global market share. Enhancing efficiencies and simplifying processes across the business mean that WebBeds is now targeting an EBITDA (EBITDA explained) margin of 62.5% of revenue.
Bear case for the Webjet share price
I’m not really expecting it to go much lower. But there are arguments for Webjet shares to stay low for longer.
The recent spike of the oil price is potentially bad news for the recovery of travel. Planes and cars are seemingly going to be paying higher fuel costs for a while. Will passengers be wary of travelling because of higher ticket prices (and COVID-19)?
Higher interest rates could hurt the valuations of ASX growth shares like Webjet. Most assets are theoretically negatively impacted by higher interest rates.
It’s possible that a new COVID-19 variant could be bad news for the ASX travel share if it leads to a reduction of travel demand.
The war in Eastern Europe could also have longer or unforeseen impacts.
Final thoughts
I think the Webjet share price is probably at a reasonable price for all of the uncertainty at the moment.
However, assuming the world somehow gets back to pre-COVID demand sooner rather than later, I think the Webjet share price has a promising future ahead. The increased profitability from WebBeds seems particularly exciting.
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