Webjet Analysis

The intention of this post is to give you all some perspective on where my head is at right now with Webjet. Any critiques or comments in relation to the following would be more than appreciated. Always keen to learn from my mistakes, so please pick them out if you see them.

Firstly, I always take a deeper look into a stock I own when I notice the short interest gains momentum. As of the 16/09/2019, the short positions stood at 5.30% of the total product on issue.

I think I should start by having a look at the valuation of this stock over time. To establish if it is "cheap" relative to where it has traded previously. I understand that as the company progresses through its life cycle, it deserves different EV/EBITDA multiples. I think it's a fair statement to say that Webjet will not grow as fast as it has over the past 10 years in the next 10 years. I would be happy to be proven wrong on this point if anyone begs to differ. Back in 2004 when it was trading around $2.50, it only had an EV/EBITDA multiple of ~6.00x. This was probably the best entry point one could have made from a risk/return standpoint. Using today's share price of $11.51, Webjet currently trades on an EV/EBITDA multiple of 12.37x - which I think is not excessive by any means. So I don't have an issue from a valuation point of view, taking other ratios and statistics into account.


Moving on to profitability. Webjet is still highly profitable, don't get me wrong. But I think management are having a better ride than us shareholders after the recent spout of acquisitions. If we look at Net Income/Total Equity (Return on Owner's Equity) it doesn't look great.

From my analysis, I think this largely comes down to the increase in goodwill. The one thing I hate (with a passion) is companies that inflate goodwill. I believe acquisitions should be reflected in the bottom line of the P&L, not in the balance sheet. The balance sheet will take care of itself if your acquisitions are successful. Apart from deceiving creditors about your solvency and acting as a deterrent for hostile takeovers, why inflate goodwill? I just don't get it.

As evidence of the growing role goodwill is playing in balance sheet of Webjet, below is an asset base analysis and a graph of total assets to goodwill for a visual representation:




So, in conclusion, yes Webjet might pass on a valuation standpoint from what I can gather. However, as mentioned in my earlier post - I'm not sure I trust those in charge of the books at Webjet right now. Any clarity on whether or not I'm reading this correctly and the exponential rise in goodwill is not a reflection of overly aggressive accounting practices, but rather a typical sign of a fast-growing tech company would be fantastic.

Regards