I just topped up at 12.03 on the close.Had thought about buying...

I just topped up at 12.03 on the close.
Had thought about buying more at 13-14 over recent months so glad that I was patient.
only all smallish parcel so can accumulate more if it heads lower with the rising short interest etc.

yes the short thesis is around a global recession and TC going belly up. I think the discount to the WEB sp relative to other high growth peers duly compensates us for the risk at 12.00.

the TC contract benefitted webjet in multiple ways, including:
- access to thousands of European direct hotel contracts which can then be sold online direct and to 3rd parties at full margin
- b2b sales to TC as a 3rd party
- if TC bookings are down due to company financial probs, this frees up more beds to be sold at full margin (Sales to TC are at a lower margin) so this balances out partly
- scale that comes from volume/ revenue growth which improves ebitda margins
- geographic diversification when webjet was previously under exposed to europe

so so even if TC has further bad news ahead, then yes it will impact short term webjet group ebitda, but several long term benefits remain.

re global recession, I think it is far to say that whilst growth and consumer spending will be anaemic in the next 1-2 years, the likelihood of a widespread global recession is relatively low given the historically low interest rates and current propensity of govts to pursue expansionary fiscal policies (ie expand spending, reduce taxes and run deficits) and of central banks to loosen monetary policy (ecb, fed, Chinese cv and rba are all lowering rates and injecting liquidity via lowering capital requirements of banks, etc).

the only risk is trade war but I see both China and USA demonstrating overt economic weakness (low inflation, soft consumer spending, manufacturing contraction, etc) such that neither is in a position to drive hard on further tariffs etc. although neither will want to lose face to their respective public, both will be motivated to reach a deal within the next 12months that is mutually acceptable.

given how low cash rates and bond yields are, the net effect is to drive money into equities and the discount rate when calculating valuations on equities is lower thus driving higher valuations (ie expanding P/E ratios). Their 2% dividend yield also provides support to the sp compared to most growth companies which pay zero dividend and are loss making/ cash burning.

webjet also has multiple growth drivers:
- dotw and every continent is growing in b2b with a long runway only currently having 4% market share in b2b but growing rapidly
- umrah religious holidays will drive ebitda growth in 2-3 years and has a long runway
- population growth at a global level
- the rise of global travel for the expanding middle class esp in China, India and the middle east
- the progressive dominance of online travel bookings and the move away from bricks and mortar
- economies of scale as they increase market share and rezchain which will improve margins as they aim for 8/4/4 with an impressive 50% ebitda margin goal
- they have openly flagged further near term acquisition targets.
- web has a large amount of revenue in overseas currencies and benefits from a decline in the aud.

I don’t have a crystal ball and always practise caution when betting against the shorters, but this looks like a good risk reward play with a medium-long term time horizon at or below 12.00.

remember that the shorters have a very short time horizon because they have to pay more the longer they borrow the shares and often they will try to pre empt a downside catalyst (eg TC issues) then once it has played out and they have exhausted the selling, they switch and go long for the ride back up.

i doubt the short thesis is based on any long term theory that webjet is instrinaically doomed, rather that it is a short term play and with the additional benefit of providing a downside hedge to the global economic outlook (given webjet is exposed to the global consumer) to offset the funds long positions.

good luck to all and let me know if you disagree with any or all of the above, I’m happy to be corrected on any factual errors or misinterpretations.