Online travel agency Webjet (ASX: WEB) has expanded its market share through the acquisition of fellow online agency Zuji. Zuji has a presence not only in Australia, but also enjoys market leading positions in the Hong Kong and Singapore markets.
At 4.6 times adjusted earnings before interest, tax, depreciation, and amortisation (EBITDA), it looks reasonably priced for an online business with decent scale. However, it is always interesting to question why the vendor has elected to sell Zuji. A look at the results of private equity-backed Sabre Holdings, the owner of Travelocity.com and Zuji, shows that it hasn’t been smooth sailing for Sabre’s online travel agencies. The most glaring observation was Sabre management’s comment regarding heightened competition and increased costs to attract viewers to its online travel agencies.
To pay for the acquisition, Webjet management has undertaken a placement of $25 million to institutional and sophisticated investors. This means shareholders, who only have the option of subscribing via a Share Purchase Plan (SPP), are diluted. The SPP allows a maximum of only $15,000 worth of shares per shareholder. What’s more, the total SPP is capped at a maximum of $5 million. Not a great outcome for many long-term Webjet shareholders.
The travel sector has certainly had a good run recently. Online accommodation booking company Wotif’s (ASX: WTF) share price is nudging toward 12-month highs after updating the market at its Annual General Meeting (AGM). The update stated that first quarter profit was in line with the previous period and management announced it was raising commission rates by 1% in calendar year 2013 and 2014. Likewise, Corporate Travel Management’s (ASX: CTD) share price is near its 12-month high after reporting first-quarter 2013 results showing 15% organic growth in transaction value and guidance for the full financial year of 15% to 20% EBITDA growth. Sector leader Flight Centre (ASX: FLT) is also performing well, having recently paid down a large portion of its debt and guiding market expectations toward modest growth for the current financial year.
The strong Aussie dollar (AUD) has been beneficial to agents selling overseas holidays. If the AUD drops back toward long-term averages, expect the number of overseas holidays sold to drop substantially. Some agents are better positioned and less affected than others by this dynamic.
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