Commentary from The Age - follows Wotif's poor results yesterday....
Webjet Limited IT IS dangerous to stand in the way of a runaway bus, or on this occasion a jet plane. However, closely scrutinising the dynamics of a business and questioning the share price should be a daily occurrence when playing the sharemarket. Online booking group Webjet (WEB) has enjoyed a staggering 33 per cent surge in its share price since raising $25 million to buy rival Zuji last December. The acquisition was highly accretive given Webjet only paid 4.6 times earnings before interest, tax, depreciation and amortisation (EBITDA) for the Asian-based operation.
There are some concerns and a lot of blue sky baked into the share price today. Webjet's traditional online business has slowed significantly over the course of the past year, and only price rises saved the group from anaemic growth in the December half. The price increases, though, did not disguise poor operating cash flow for the period and no explanation was given in the commentary.
Not only has the company hit a poor cash flow period, it also continues to capitalise software costs and amortise them over 25 years, a strange decision given that software rarely lasts 25 years in any business. If we cost the software development the company is trading on a hefty 33 PE multiple and about 50 times current operating cash flow. If cash flows and earnings are disappointing at the June 30 results, it could be better to look elsewhere.
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