The Webjet Limited (ASX: WEB) share price is coming under pressure today following the collapse of its UK partner Thomas Cook. Shares fell by as much as 5% in early trade.
Webjet is a digital travel business spanning both global consumer markets (‘B2C’) and wholesale markets (‘B2B’). It was established in 1998 and now claims to be the leading online travel agency (OTA) in Australia and New Zealand.
Thomas Cook Headed For Bankruptcy
In 2016, Webjet paid £21 million to become a strategic partner with the UK-based travel group in an agreement that saw Webjet managing hotel bookings for Thomas Cook customers travelling in Europe.
Thomas Cook has been struggling for some time and it appears that it’s finally coming to a head after entering compulsory liquidation earlier today. It had been hoped that the business could be saved by the large Chinese investment company Fosun. However, it now seems unlikely that Thomas Cook will be able to secure a rescue package to save itself from bankruptcy.
Thomas Cook has origins dating back some 178 years, making it one of the world’s oldest. The business also employs more than 20,000 people around the world, jobs which now hang by a thread as a result of the latest updates.
How Will This Impact Upon Webjet?
Thomas Cook was expected to contribute $150-$200 million in total transaction value (TTV) in FY20 which will now not come to fruition. Approximately €27 million ($44 million) that was owed to Webjet will be written off and treated as a one-off expense to the income statement. The impact of Thomas Cook’s collapse is also expected to reduce EBITDA forecasts by up to $7 million in EBITDA.
It was no secret that the Thomas Cook business had been struggling and this is likely to have been a contributing factor to the weak share price performance in recent months. As a result, this latest news is unlikely to drastically effect the share price as much of the bad news may have already been factored in by investors.
Despite a falling share price, Webjet has been growing very impressively and only last month announced a 27% increase in TTV to $3.8 billion.
Opportunity To Buy Cheaply?
In recent times, investors have been seemingly willing to pay almost any price for fast-growing tech companies, bidding up the price of some of the ASX tech darlings to eye-watering multiples of profits.
Webjet may not be growing its revenue as quickly as investor favourite Afterpay Touch Group Ltd (ASX: APT), but it’s a tech company growing quicker than most and it trades on an undemanding multiple of 23x earnings. On a forward-looking basis, this is likely to fall into the mid-teens based on projected profit growth in FY20.
It will be interesting to see what management has to say about the latest developments and whether they have a need to revise their profit guidance for the remainder of FY20. The company will be providing FY20 guidance at its AGM on 20 November 2019.
I will be watching closely and have now added Webjet to my watchlist for further analysis.
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Disclosure: At the time of publishing, Luke has no financial interest in any companies mentioned.
