By Eva Brocklehurst Webjet ((WEB)) has disappointed the market,...

By Eva Brocklehurst
Webjet ((WEB)) has disappointed the market, which was hoping for some clear air following significant acquisition activity in the past year or so. Guidance to operating earnings of $80m in FY18 has been undermined by one-off items.
The company has flagged a total of $5.6m in one-of costs including the JacTravel integration at $1.2m, a Netflix tax in relation to Online Republic of $1.7m and Thomas Cook costs of $2.7m. As well, FIT Ruums losses are now expected to be in line with FY17, versus previous commentary that losses should narrow in FY18.
Morgans suggests there is the usual degree of conservatism in the guidance, as well as some additional caution regarding currency volatility because of the large exposure to Europe/UK. Moreover, given the strong earnings growth forecast for the years ahead is considered oversold and the broker retains an Add rating.
The share price reaction to the guidance - it slumped -11.6% - highlights the risks inherent in high PE ratio companies that do not deliver on expectations, yet Morgans still considers the valuation metrics attractive relative to peers.
Credit Suisse downgrades to Neutral from Outperform, suggesting the need for clarity on various matters such as B2B costs, tax changes, the Thomas Cook investment and JacTravel is likely to mean the stock is range bound in the near term. The company did not have JacTravel in July and August, which are strongest months seasonally, so first half cash flow is expected to be negative with the usual rebound in the second half.
However, Credit Suisse is not that concerned about the cash flow outlook because of that seasonality in the business in recent years but finds the large number of extraordinary items adds confusion to an already complicated outlook. The broker is still a believer in the value proposition of the B2B offering but believes this is unlikely to play out until FY19-20.