Webjet Limited (ASX: WEB) shares continue to be amongst some of the most traded on the ASX in recent weeks.
According to CommSec, buyers accounted for fairly equal trade volume last week. The Webjet share price has jumped 30% over the past month alone.
WEB share price chart
Why is the Webjet share price rising?
The outlook for travel companies has gradually been improving in recent months. Global COVID-19 vaccine rollouts are making good progress, which has provided the travel sector with some much-needed optimism.
The sector received an additional boost last week when the Federal Government announced it will support the travel industry by subsidising the cost of around 800,000 flights to regional areas across the country. The subsidy will be available for trips booked between 1 April and 31 July on a first-in, best-dressed basis.
Webjet’s recent financial results
The jump in the Webjet share price comes despite the company posting an 89% drop in total transaction value (TTV) in its recent half-year result. Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) also tumbled to a loss of $40.1 million.
Webjet’s cash burn has been reduced to roughly $4.8 million per month, and the company had a closing cash balance of $283 million as of 31 December.
Future outlook
According to management, Webjet’s online travel agency (OTA) and WebBeds segments are highly leveraged to the reopening of domestic and international leisure markets. Additionally, a COVID-accelerated shift to online travel agents means that Webjet is strategically placed to capitalise on the recovery.
Due to ongoing travel restrictions and border closures, management anticipates that upcoming financial results will be relatively similar to what it’s seen in the first half of FY21, and no earnings guidance will be provided.
In saying that, management seems fairly confident on the longer-term recovery, with substantial pent-up demand being a potential growth driver as restrictions are further eased around the world.
Webjet: Buy/hold/sell?
While a long-term recovery seems to be a likely outcome, it’s worth noting that Webjet, similar to Flight Centre Travel Group Ltd (ASX: FLT), has roughly doubled its shares on issue over the past year as it’s raised capital.
While the Webjet share price is still trading ~50% lower than where it was prior to COVID, such an increase in shares outstanding means that its market capitalisation is more or less what it would’ve been pre-COVID. In other words, its current valuation implies a recovery is fairly priced in, despite shares still trading at an apparent discount.
If you’re interested in learning about how this works in a bit more detail, I wrote about it in this article: Time to buy Webjet or Flight Centre shares? Read this first.
