If you go by UBS research this stock has a lot of potential in...

If you go by UBS research this stock has a lot of potential in the year ahead. Shorters love a bit of noise.

UBS Research dated 23rd August.

Webjet Limited "FY19 result: Look beyond the noise – what was already ..."

WEB offers attractive value and has solid momentum heading into FY20E
A credible 2H19 result (+3% EBITDA beat), especially given the challenging operating environment (Europe + Aus. Leisure + TC issues). In our view, these three key challenges were core drivers behind recent share price weakness: -24% since May19 vs our FY20E EPS -11% over same period (leading to WEB's FY20E PE derating from 18.6x to 15.9x). B2B organic growth of ~+36% in 2H19 (1H +24%) was a highlight, as WEB gained material share while achieving solid operating leverage (direct contracted + pull forward of synergies). The YTD trading provides increased comfort around our FY20E forecasts and we continue to believe WEB has structural and market share gain benefits, together with DOTW acquisition synergies. In our view, these features differentiate WEB relative to other travel-related peers and valuation looks appealing relative to growth (+16% FY20-23E EPS CAGR) – Buy.

Credible set of numbers in a challenging macro environment
Revenue $336m (+26% yoy / -3% vs UBSe), EBITDA $124.6m (+43% yoy / +2% vs UBSe and guidance of at least $120m), NPATA $81.3m (+46% yoy / +1% vs UBSe). Highlights: 1) B2C rev +3%, EBITDA +2% (vs UBSe +8%); 2) B2B rev +62%, EBITDA +148% (UBSe +118%), but organic +30% (1H19 +24%); 3) B2C underperformed vs UBSe while B2B materially outperformed; 4) Part of B2B result was early pull through of DOTW synergies (UBSe $2-3m) + some Asia B2B opportunity; 5) Strong operating cash conversion of 98% (normalised for $53m ERP payments – as previously flagged in FY18/1H19 results).

Modest changes to medium-term forecasts
The first six weeks of FY20 started materially better than the market feared: Webjet TTV +9%, Online Republic +4%, WebBeds +50% (ex. TC). Thomas Cook (TC) related guidance was downgraded (as expected) - TTV target now $150-200m (vs $300-450m previously) and incremental from DOTW/TC/Asia B2B now $27-33m vs $40m previously (UBSe $33m). Our EBITDA estimates remain largely unchanged, but compositionally different. Higher D&A/interest partially offset by lower tax drives FY20-22E EPS downgrades of 3-6%.