The Webjet Limited (ASX: WEB) share price has been languishing in recent months. But I think this lower level represents a compelling price.
Webjet is one of the largest ASX travel shares. While it does have an impressive online travel agency (OTA) business targeted at Australia, the business that could generate the most value for the company is WebBeds, a provider of business-to-business services.
Why the Webjet share price could be a good buy
For me, it boils down to two main factors.
A recovery
The first factor is a recovery from COVID-19 impacts. Webjet shares have not done much since November 2020, which is when the world learned of the efficacy of the new vaccines to protect against COVID.
Investors sent up Webjet shares based on the expectation that travel markets would recover. Well, two years later, the actual recovery is here but investors don’t seem any more positive.
The ASX travel share recently announced that its bookings have come “roaring back”, they are currently tracking at 95% of pre-pandemic levels and all three of its businesses are profitable in FY23 to date. I think this is very promising for the Webjet share price.
For WebBeds, Webjet said that it has seen an exceptional northern hemisphere summer trading period. Bookings have been ahead of pre-pandemic levels since May. July was the record for total transaction value (TTV) for WebBeds. August surpassed July.
The Webjet OTA business is increasing its market share and it sees a genuine opportunity in the international arena. Webjet OTA is expected to return to pre-pandemic earnings levels once international airline capacity returns to 2019 levels.
It has done a lot of work to transform its business to ensure it would emerge more efficient, more profitable and with a higher market share when travel returned. It’s expecting to beat pre-pandemic earnings in FY24, well ahead of when the broader travel market is expected to return to 2019 levels.
WebBeds
Specifically on WebBeds, it has been growing its market share. Its EBITDA (EBITDA explained) margin is expected to be higher than 50% in the first half of FY23. In the peak months of July and August, it hits its target EBITDA margin of 62.5%.
Management said they have full confidence to beat its pre-pandemic levels as the business continues to scale.
With a large recovery of TTV and the EBITDA margin, WebBeds could power the Webjet share price much higher over the long-term. Remember, FY24 is not the end of Webjet’s growth, it could see further growth in the years ahead.
Final thoughts
While Webjet isn’t as cheap as it was at the start of the COVID-19 crash, I think the business is on track to make impressive profits in FY24 onwards. The business has an attractive future in my opinion, so I think the Webjet share price will reflect this in 2023 onwards.
