Stocks’ Details

Webjet Limited

WebBeds EBITDA More Than Doubled in 1H FY19: Webjet Limited (ASX: WEB) is engaged in the business of online sale of travel products, including flights and hotel rooms. The Consolidated Entity’s business consists of a B2C division and a B2B division (WebBeds). WEB is the leader in-terms of the OTA (Online Travel Agency) in Australia and New Zealand. The Company’s B2C division operates two online travel businesses under the ‘Webjet’ and ‘Online Republic’ brands.
Recently, the company disclosed that UBS Group AG and its related bodies corporate ceased to be a substantial holder of WEB since 10 May 2019. Webjet, in its recent updates, informed that the voluntary escrow restrictions on 1,059,681 ordinary shares which were issued in part consideration for the acquisition of DOTW Limited has been lifted on 21 May 2019.

1H FY 2019 Financial Performance: The company posted a record performance in the first half of FY19 with a 42% rise in EBITDA to $58.0 million. Top line witnessed a growth of 33% to $175.3 million and NPAT (net profit after tax) was significantly up by 61% to $38.3 million.

The first half also witnessed a substantial success of WebBeds business which emerged first time as the company’s largest business unit in terms of EBITDA which was more than doubled on yoy (year-on-year) from $12.8 million in 1HFY18 to $30.1 million in 1HFY19. The exuberant growth in EBITDA was primarily on the back of strong growth in the key European and Middle East markets, with substantial participation from the Americas. Total Transactional Value (TTV) for the period under consideration recorded a growth of 29%, which accounts a 2% rise in B2C and a 65% rise in B2B.


EBITDA Trend (Source: Company Reports)

With the acquisitions of JacTravel and Destinations of the World (DOTW), the company has shifted its focus from raising market share to pursuing much profitable growth which has resulted in a rise in TTV and EBITDA margins in all regions. The Webjet OTA has been continuing to raise its share despite a sluggish domestic flights market. The company’s strategy to emphasize profitable bookings in the Online Republic has witnessed an improvement in TTV and EBITDA margins.

What to Expect From WEB: The management expects that WebBeds will be achieved ‘8/4/4’ target by FY 2022. The management has reconfirmed FY19 guidance which seems on track to deliver at least $120 million EBITDA (ex- one offs associated with the acquisition of DOTW).

Stock Recommendation: At the current market price of $15.010 per share, the stock is trading at price to earnings multiple of 37.28x. The company has demonstrated a powerful growth in the recent past. With an increasing global footprint and business scale by acquisition, highly competitive inventory pricing, differentiated offerings, low-cost model along with strong fundamental lead us to give a “Buy” recommendation on the stock at the current market price of $15.010 per share (down 2.848% on 24 May 2019).
 

Downer EDI Limited

Strong Cash Flow Conversion: Downer EDI Limited (ASX: DOW) is the leading provider of integrated services in Australia and New Zealand. The business comprises transport, utilities, facilities, EC&M (engineering, construction and maintenance) and mining.

The company as on 22 May 2019 informed that Peter Watson has been appointed as a Non-Executive Director, with effect from 22 May 2019. The company has also updated that Vinva Investment Management has become an initial substantial holder with the voting power of 5% in the company.

Performance in 1H FY 2019: The company delivered excellent operational and financial performance for the period with total revenue growth at 8.6% to $6.6 billion. Statutory EBITA witnessed a growth of 20.6% to $268.0 million as compared to underlying EBITA of $222.3 million in pcp. The significant growth in EBITA was primarily driven by Mining, Utilities, Transport and Facilities, partially offset by a lower contribution from EC&M. NPATA for the Group increased by 23.8% to $163.4 million.

With operating cash flow of $355.3 million in 1H FY19, the company has continued delivering cash backed earnings with +90% cash conversion to adjusted EBITDA.


1H FY19 Key Financial Parameters (Source: Company Reports)
 
What to Expect From DOW: The company has increased its target guidance for FY 2019 to $352 million consolidated net profit after tax and before amortisation of acquired intangible assets (NPATA) before minority interests. EPS growth is pegged at 19% in FY19. The company is determined to maintain a dividend pay-out ratio within 50 to 60% of NPATA as a result of active capital management.
 
Stock Recommendation: Consistent conservative gearing position, balance sheet flexibility to support growth, strong fundamentals, diversified revenue stream, etc augurs well for the future growth of the company.

At the current market price of $7.870 per share, the stock is trading at the price to earnings multiple of 21.880x. The stock has generated decent returns of 23.34% and 19.46% in last 6-months and on YTD basis, respectively. Currently, the stock is trading towards its 52-week higher levels of $8.710.

Hence, considering the aforesaid facts and current trading level, we give a “Hold” recommendation on the stock at the current market price of $7.870 per share (down 1.378% on 24 May 2019).
 

EML Payments Limited

Reaffirms FY19 EBITDA Guidance: EML Payments Limited (ASX: EML) provides prepaid payment services in Australia, Europe and North America.

The company recently announced that it has entered into an 8-year agreement with Smartgroup Corporation Limited (ASX: SIQ). EML will provide branded General Purpose Reloadable card programs for a pay-out of Salary Packaging benefits. The main source of revenue for the company is a monthly transaction fee per benefit account alongside other revenue streams of interchange, interest, FX fees, transaction fees on Non-Reloadable cards sold and breakage. The management is of the view that this contract will bring in the incremental volume and hence, a revenue addition per annum of ~$4 to $8 million.

The company has recently announced the acquisition of Flex-e-Card Limited (FEC). EML Payments Europe Limited, wholly owned subsidiary of EML has acquired 100% of FEC for a total consideration of GBP21.6 million (approx. AUD 40.5 million). The transaction is likely to be completed on 28 June 2019 (subject to approval). The company expects to consolidate 100% ownership share in FEC into financial results from 28 June 2019 (FY20) onwards.

Outlook: The company has reaffirmed its FY19 EBTDA guidance to be in the range of $27 million to $28 million. Revenue for FY19 is expected to be in the range of $88 - $94 million and operating cash flow as a percentage of EBTDA to be in the range of 70% to 80% for FY19.


EBITDA Guidance FY19 (Source: Company Reports)
 
Stock Recommendation: The stock is currently trading closer to its 52-week higher levels of $2.560 with high PE multiple of 227.68x. The stock has gained a 60% on YTD basis. Considering the above-mentioned facts and current trading level and price performance of the stock, we give a “Hold” recommendation on the stock at the current market price of $2.550 per share (up 6.25% on 24 May 2019).


Comparative Price Chart (Source: Thomson Reuters)    

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