As per my posts over the last month when this story first broke, I said that TC could go bust and that should be factored into valuation as a possible outcome.
i didn’t think they would go down quite so quickly, but here we are.
i went back and read all the webjet announcements and presentations from August 2016 to mid 2017 following the TC announcement.
the reality is that the price webjet paid was 21mill to basically acquire 3,000 direct hotel contracts. The catch for webjet was that TC still demanded to be the ‘preferred customer’ for these hotels meaning that they get first dibs on the beds at a preferential price, ie reduced margin.
sure, under this agreement webjet were in the short term a beneficiary via ensuring their hotel beds were sold, thus achieving a higher TTV, but the downside was that rooms were sold to tc at a lower margin. Now that the TC contract will no longer exist, those rooms can be sold to any other OTA, tour operator or to webjet customers, all of which will achieve superior margins.
the reality is that TC going under won’t result in less people going on holiday, it just accelerates the transition away from bricks and mortar travel agents and tour operators. Anyone who thinks that there would still be Thomas cook (or flight centre) offices in shopping centres and on main streets in 10 years is about as deluded as those who thought blockbuster video and video ezy would survive, work years ago.
so so this was not an acquisition of TC by Web that has failed, it was an acquisition of 3,000 hotel contracts which has accelerated web’s path to number 2 position in Europe and the global b2b market. They have now been released from the constraints of TC and will be better for it, despite the short term profit hit they will take.
as a LT web shareholder, I am much more concerned about the impact of a global recession on webjet if that occurs, I’m not bothered by this at all because TC surviving was not part of my investment thesis 2 years ago and it’s demise has been inevitable, it was just a question of timing.
re valuation and entry price, well I added a small parcel at 11.80 recently and thought that it may go lower as it has, but it was a double edged bet because if the rescue deal came through the SP would have soared 10%.
I suspect now that some further panic selling, stop losses and then several broker PT downward revisions over the coming weeks will offer a lower entry point, especially if global geopolitical tensions continue or worsen.
I would love to see it bottom out around $10 in the midst of maximal pessimism over the next month or so. If so, I’ll add some more well before it rallies into the AGM on the late expectation of positive guidance.
anyone who owns webjet shares and thinks this changes their mind needs to really reconsider whether their investment thesis was truly dependent on the small amount of TC revenue (which was never going to grow in future), or whether this is just noise that offers a favourable medium term entry point for a rapidly growing company.
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