Renewed jitters about COVID-19 is rocking the market but there's one ASX share that is particularly vulnerable to any delay in the economy reopening.
The S&P/ASX 200 Index (Index:^AXJO) slumped 1.2%. Not a good way to end the week but investors are worried about the economic recovery.
The Delta COVID mutation is creating a fresh headwind and you only need to look at Sydney to see why.
Europe is in no better shape and that's dashing hopes that international borders could reopen sooner rather than later.
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ASX shares exposed to a delayed COVID reopening
That spells trouble for ASX travel shares like the Qantas Airways Limited (ASX: QAN) share price and Flight Centre Travel Group Ltd (ASX: FLT) share price.
Even the Sydney Airport Holdings Pty Ltd (ASX: SYD) share price fell around 1.5% at the time of writing despite a takeover bid.
But there's one ASX share that has even more to lose from the COVID reopening delay. This is the Webjet Limited (ASX: WEB) share price, according to Morgan Stanley.
Webjet share price most at risk
"We expect the European summer to be severely affected by Covid in FY22, pushing recovery to FY23," said the broker.
"The lost earnings also affect a balance sheet that has already experienced several rounds of repair at the expense of significant dilution."
Like many other ASX shares, Webjet raised emergency capital during the initial COVID-19 outbreak last year.
Massive dilution to drown the Webjet share price recovery
However, unlike many others, Webjet issued a lot of convertible notes to get cash through the door. This is coming back to haunt shareholders as noteholders convert their holdings into Webjet shares.
Morgan Stanley reckons that the conversion will dilute the share base by more than three times! This in turn limits total shareholder returns for the Webjet share price.
Good news already priced in
"WEB's market cap is at c. pre-Covid levels with two rounds of significant convertible note dilution to come. We think a significant rebound is being priced in," said Morgan Stanley.
"WEB's B2B business is heavily leveraged to the Northern Hemisphere summer, for which booking activity remains severely constrained – bookings were running at one-third of break-even levels in April and early May."
Even the lockdown of interstate travel in Australia will limit the upside for the Webjet share price, noted the broker.
Buy, sell or hold the Webjet share price?
One would have thought that Morgan Stanley would slap a "sell" recommendation on Webjet in light of these issues. This is particularly so given that the Webjet share price is well above the broker's $4.30 a share price target.
But Morgan Stanley reiterated its "equal-weigh" rating on Webjet because its shares are so volatile. Also, the COVID reopening is more a question of "when" and not "if".
Given how difficult it is to time these things, shareholders could be kicking themselves if they dumped the Webjet share price now.
