Webjet Grounded As Rival Flight Centre Soars

Conflicting market reactions to the annual results of the two better-performed travel groups listed on the ASX Webjet and Flight Centre.

On the one hand, investors loved the typically upbeat report from Flight Centre, even though earnings were weak and the dividend was cut. The company though was very confident about its outlook. The shares were up more than 10% at one stage before coming back to end up 7.5% at $47.14.

In contrast, the shares in Webjet slumped more than 12% despite its upbeat result and higher dividend. The shares later recovered a touch to close still down (by 8.3%) at $12.70.

Investors didn’t like the sting in the tail of the Webjet release where directors said that from now on dividends would grow slower than earnings per share – a cautionary note many investors took to be a warning about weak future growth.

Flight Centre reported a net profit of $263.8 million compared with $263.6 million in the previous financial year – a rise of just 0.1% (hardly worth the boast) which came on a higher 4.5% rise in revenue for the year of $3.05 billion.

Flight Centre said its underlying full-year profits before tax dropped 11% to $343 million.

That result was within guidance given in April, when Flight Centre shares fell sharply after the company warned of the impact of the weak domestic markets and problems in some offshore markets, such as the UK where Brexit is a destabilising force (and remains so)lowering expectations because of both internal upheaval and muted appetite from Australians for travel.

It declared a fully franked final dividend of 98 cents, down from $1.07 in the previous corresponding period. That made a total for 2018-19 of $3.07 a share, up from $1.67 the year before.

The interim this year included a special payment of $1.49 a share, so ignoring that the ordinary annual dividend for 2018-19 was $1.58, down from the previous year and a better guide to what was a tough year for the company – much tougher than the hype in the press release on Thursday.

Flight Centre’s biggest problem was its home market the Australian leisure market which remains weak thanks to the low level of consumer activity and confidence, falling house prices, weak wage growth and political uncertainty for most of the financial year.

Given the below-average result from Flight Centre (as signaled by the ordinary dividend cut and drop in underlying earnings) it’s hard to understand the treatment meted out to Webjet shares yesterday.

The company reported a 46% jump in net profit to ported an adjusted net profit of $81.3 million on a 26% rise in revenue of $366.4 million for the year to June 30.

Earnings Before interest, tax, Depreciation, and Amortisation (EBITDA) jumped 43% to $124.6 million.

The company announced a fully franked final dividend of 13.5 cents a share, bringing the total dividend for the year to 22 cents, an increase of 10%.

“Following the acquisitions of both JacTravel and Destinations of the World (DOTW), the Company’s WebBeds business is now the largest business across bookings, TTV and EBITDA. WebBeds TTV was $2.2 billion, up 59% over FY18 and EBITDA was $67.3 million, up 148%, with strong growth coming through in all regions,” directors said in yesterday’s release.

“The Webjet Online Travel Agency (OTA) continues to outperform with flight bookings growing around twice the underlying market. Despite a tough domestic market in FY19, both TTV and EBITDA margins improved, increasing to 10.9% and 40.4% respectively.”

So why the sell-down? Well in the release, chair Roger Sharp said;

“We have increased our final dividend to 13.5 cents per share, payable on 10 October 2019, bringing the total dividend for FY19 to 22 cents. Going forward, we expect dividend increases to be lower than EPS growth in order to retain cash for future growth opportunities.”

And CEO John Guscic said about the outlook:

“The first 6 weeks of trading have shown a strong start to FY20. WebBeds TTV is up over 50% compared to the prior corresponding period, Webjet OTA TTV is up 9% and Online Republic TTV is up 4%. As well as driving organic growth in all our businesses, we have a strong pipeline of acquisition opportunities. We will be providing a guidance range at our AGM on 20 November 2019.”

The market took those comments as a signal the company will not be growing as strongly in 2019-20, despite the comments about the “strong start” to the year from the CEO.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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