The Webjet Limited (ASX: WEB) share price is going to be under the spotlight this week as the travel business is due to hand in its FY21 report.
What’s going to happen?
I don’t actually have the numbers – the result will be released tomorrow. If you’re wondering why it’s reporting now, it’s because the business has changed its financial year end to 31 March, starting in 2021. This report will be for the nine months to 31 March 2021.
One of the commercial drivers for the year end change was the growing significance of WebBeds to the group’s earnings, which are skewed to the Northern Hemisphere summer period.
Investors haven’t been positive on the Webjet share price. It has fallen by around 25% since 18 March 2021 when it gave investors a presentation.
Management are currently working through initiatives to make the WebBeds business 20% more cost efficient when it’s at scale and operating with good volume again.
WebBeds is also looking to find new revenue and cost reduction opportunities in a post COVID-19 world. The ASX travel share is expanding into new regions, serving new customers, taking advantage of changing travel patterns, simplifying and refining technology and processes across the business.
Webjet has had a long term goal of ‘8/4/4’. Its aim is to see revenue be 8% of total transaction value (TTV), costs as 4% of TTV and the EBITDA margin (EBITDA explained) being 4% of TTV. What that essentially means is that WebBeds would have an EBITDA margin of 50%. Webjet says that it’s tracking ahead of its plan to achieve this. Webjet is now targeting 8/3/5, meaning it’s expecting the EBITDA margin to be higher, at 62.5%, when back at scale.
COVID-19
Comments about COVID-19 impacts will be very interesting. Australia’s vaccination programme isn’t quite as far ahead as hoped. However, plenty of other countries where Webjet operates are doing well.
Australia’s international borders may be closed to almost all countries, but the domestic travel is recovering, which is good news for Webjet. The improving vaccination situation in the Norther Hemisphere should mean more flights in the air over time. The UK is starting to allow international flights to a few locations such as Portugal.
Summary thoughts on the Webjet share price
It will be very interesting to see if Webjet’s cash burn has continued to reduce. The company used to be one the ASX’s most promising mid caps. If it can get back to generating profit growth then it may be attractive again.
However, there are other ASX growth shares that haven’t been hit as hard as Webjet. But I do like Webjet’s management’s comments about a stronger margin than it first envisaged.
