WEB – Webjet Limited

Webjet Limited (ASX:WEB) is an online travel agency that has operated in Australia and New Zealand for 15 years.  Webjet provides tools and technology for customers to compare, combine and book domestic and international travel flights deal, hotel accommodation, holiday package deals, travel insurance and car hire worldwide.  Webjet also operates websites in USA, Canada, UK and Mexico.

In December 2012, Webjet acquired Zuji which is the market leader in airline ticket sales in Hong Kong and Singapore.

Webjet also operates a business based in Dubai under the name Lots of Hotels.  Lots of Hotels is an online business-to-business hotel room booking service operating in the Middle East, North Africa and Southern Europe with plans to open up in new markets throughout 2014.

Does this business have a sustainable competitive advantage?

Webjet is the search engine standard in Australia and New Zealand for people shopping around for airline prices.  Webjet receives about 50 Million website views per annum creating a positive feedback loop.  The positive feedback loop occurs where more people searching on the site leads to more bookings from new customers.  Assuming a positive consumer experience, those new customers are likely to come back next time and thus creating a virtuous cycle of business growth and repeat customers.

Being an online business, Webjet have a scalable platform for growth.  Webjet have now fully integrated Zuji into its back end operations.  This allows the company to expand its offering in three main ways:

  1. Enhanced product offering across existing markets in Australia, New Zealand, Hong Kong and Singapore.  An example of this might be leveraging Zuji’s expertise in the Hotel market into Australia and New Zealand
  2. New product offerings such as the LotsofHotels concept into new markets
  3. Scaling the existing platform into new markets logically in new parts of Asia with Zuji and potentially on a global scale.

What are the risks facing this business?

One risk is the ability to maintain the ‘search engine standard’ for air travel price comparison from potential travelers.  The company does have new and increasing competition however the company has managed to stay ahead of the pack for over a decade.

The company will need to maintain that technological advantage and simplicity of use for consumers in order to maintain their market leading status.

Is it run by able and trustworthy management?
The business is run with an extremely strong balance sheet with a strong net cash position.

I watched an interview on the Switzer program last week with the CEO of the company John Guscic.  From that interview, I was very impressed as he articulated very clearly what is going well for the business, what is happening in the industry and the future direction for the business.

Is it trading at a bargain price?
The company is getting close to my estimate of value for 2014.  However, when you consider that we are only four months away from the start of a new financial year, then the business is very good value when you look a year out.

And, the company has rarely traded below my estimate of value since the GFC.  In my experience, I have observed that the share price of good quality companies such as Webjet do not stay below my estimates of value for long periods of time.

Company Code Rank 2013 Actual Valuation Today’s Share Price Margin of Safety 2014 Forecast Valuation 2015 Forecast Valuation
Webjet Limited WEB Gold 2 $2.79 $3.09 2% $3.16 $3.63

*Please note that forecast estimates of intrinsic value are subject to change on a daily/weekly basis.

Here is a weekly chart of Webjet going back to the GFC

The red horizontal lines denote periods where share price above my valuation and the green horizontal lines showing share price below my valuation at the time.

In summary, Webjet is an excellent business which has a scalable platform for continued growth.  The company has a very strong balance sheet.  The company has very good management with plenty of experience and a clear strategy in place. And, the company is trading at a discount to my estimate of 2015 intrinsic value.

This article is published by Dean Mico.

Disclosure: The Edge Fund owns shares in Webjet Limited.

The information provided in this article is intended for general use only. The article is intended to provide educational information only. Please be aware that investing involves the risk of capital loss. The information presented does not take into account the investment objectives, financial situation and advisory needs of any particular person, nor does the information provided constitute investment advice. Under no circumstances should investments be based solely on the information herein.

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