This time last week the shares of online travel agent Webjet Limited (ASX: WEB) plunged over 11% following a sell-off in small cap shares and concerns over subdued trading conditions.
Both Qantas Airways Limited (ASX: QAN) and Virgin Australia Holdings Ltd (ASX: VAH) had warned that they had been experiencing weakness in domestic demand. Although Qantas carried more passengers, the revenue it gained per passenger fell due to discounting.
Webjet's shares then drifted lower still on Friday when rival Flight Centre Travel Group Ltd (ASX: FLT) released its FY 2017 targets. It's fair to say that the market was less than impressed with Flight Centre's underlying profit before tax guidance.
For FY 2017 Flight Centre expects underlying profit after tax to be in the range of $320 million to $355 million, compared to $352.4 million in FY 2016. At best this is an increase of less than 1%, at worst this is a decrease of almost 10% on last year's result.
This clearly led the market to fear the worst for Webjet. But thankfully this morning the company has released a very positive full year earnings guidance.
For FY 2017 Webjet expects earnings before interest, tax, depreciation, and amortisation (EBITDA) to be $78 million. This will be a massive 113% higher than FY 2016's EBITDA of $36.6 million.
It is worth noting that included within this EBITDA forecast is the profit from the sale of its ZUJI business to Reckon Holdings Limited and Sharp Focus Pacific Limited. Webjet will receive total consideration of $56 million, which represents a $26 million gain over the $30 million purchase price.
Excluding the ZUJI sale Webjet expects EBITDA of $60 million in FY 2017, still up an impressive 64% on last year's result.
The driver of this impressive growth has been an increase in bookings. Business-to-consumer bookings are growing at more than four times the market average. Incredibly business-to-business bookings are growing at 10 times the market average.
Although the company has sold its Asia-based ZUJI business, it certainly isn't a sign that it is giving up on the region. In fact, later this month the company will expand its presence in the Asia market with the launch of FIT Ruums.
FIT Ruums is a new start-up which it believes will extend its business-to-business segment across key Asian markets. Very little information has been provided at this stage, with more to be revealed at its AGM on November 23.
Today's release yet again reiterates just why I think Webjet is a fantastic buy and hold investment. At just 23x estimated FY 2017 earnings, it's hard to find a better value growth share.
As a result it comes as little surprise to see its shares rally strongly today on the news. Shortly after the market opened Webjet's shares had jumped 16% to $10.81.
