The Webjet Limited (ASX: WEB) share price dived at the opening bell after management issued an FY19 earnings guidance at its annual general meeting this morning.
The WEB share price declined 2.7% to a six-month low of $11.51 when the S&P/ASX 200 (Index:^AXJO) (ASX: XJO) index tumbled 1.2% in early trade.
Webjet's peers aren't faring much better. The Flight Centre Travel Group Ltd (ASX: FLT) share price fell 1.9% to $45.69, Helloworld Travel Ltd (ASX: HLO) share price lost 0.7% to $5.66 and Corporate Travel Management Ltd (ASX: CTD) share price weakened 0.9% to $21.41.
If Webjet's share price falls under $11.50, it will dissuade many shareholders from participating in its capital raising which closes tomorrow.
The raising is to help fund Webjet's acquisition of Destinations of the World (DOTW) and the entitlement is priced at $11.50 a new share.
Good guidance gone bad
Double-digit growth just isn't what it used to be.
The online travel bookings group said it's on track to deliver underlying earnings before interest, tax, depreciation and amortisation (EBITDA) of at least $110 million from its existing operations this financial year.
This compares to its FY18 EBITDA of $87.4 million and doesn't include the contribution from its DOTW acquisition.
If the takeover can be completed by tomorrow as Webjet is aiming for, DOTW will add at least $10 million to the group's FY19 EBITDA, reflecting the northern hemisphere summer holiday season and the weighting of bookings to 1HFY19.
The forecast doesn't include any synergies from the merger and DOTW is tipped to generate an annual EBITDA of at least $23 million on a pro-forma basis.
Cost savings from the deal is anticipated to be US$3 million ($4 million) per year although shareholders will have to wait till FY20 to get the full benefit as the group will have to take some related one-off costs this year.
The revenue synergies from cross-selling should add a further US$7 million ($10 million) a year with the full impact only felt in the next financial year.
What all this adds up to is an EBITDA baseline of $120 million for FY19 or a 37% increase over last year.
However, the market may have been expecting more with consensus forecasting a 38% increase in earnings per share (EPS) and EBITDA growth tends to be ahead of EPS growth.
Foolish takeaway
I think the stock sell-off is an overreaction and the risk-off mood on the market is exacerbating the drop in the stock.
There aren't many ASX 200 companies that can deliver 30% plus growth in FY19, and Webjet is trading on a pretty compelling valuation as the stock is on an FY19 consensus price-earnings multiple of 22 times.
I think investors should buy the stock if it drops below $11.50 or take up their entitlements if the share price manages to hold comfortably above this price.
