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Online travel group Webjet (ASX: WEB) is looking to split its operations in two with plans to create separate listed entities for its hotels marketplace WebBeds and its traditional travel bookings business.
The move has been buoyed by record FY24 earnings by Webjet which today posted a net profit of $72.7 million for the 12 months to March 31, up more than 400 per cent from the $14.5 million reported a year ago.
The key driver of the earnings result has been the WebBeds division which the company says continues to grow at a rapid pace.
WebBeds is a business-to-business (B2B) operation that provides travel agencies, tour operators and industry wholesalers a marketplace that connects them with more than 430,000 hotels in more than 16,000 destinations.
Webjet plans to separate WebBeds from its remaining Webjet business-to-consumer operations which comprise the Webjet OTA (online travel agency), GoSee and Trip Ninja. GoSee is a global motorhome and car rental ecommerce site, while Trip Ninja is a technology company providing solutions for complex travel itineraries.
Webjet CEO John Guscic says the two divisions are “increasingly diverging and have minimal operational co-dependence”.
“B2C has seen the structural shift to online accelerate since the pandemic, leading to significant growth in market share and we continue to see significant growth opportunities for WebBeds as a genuine player of global scale underpinned by our three pillars of growth: growing our existing portfolio, new customers, supply and markets, and driving improved conversion,” says Guscic.
Webjet says that if a demerger proceeds it will deliver two standalone companies “with leadership positions in their respective industries and with their own distinct operating profiles, strategies and growth opportunities”.
“Having carefully weighed up the arguments for and against a demerger, the board sees significant value enhancement through a potential separation of our two industry leading businesses and brands,” says Webjet chair Roger Sharp.
“Our B2C businesses will continue to deliver organic growth through the shift to online, while separation will support our WebBeds business in its relentless focus on achieving scale in all markets in a post-pandemic landscape characterised by a reduced number of smaller competitors.
“Both Webjet B2C and WebBeds will be well positioned to offer enhanced solutions to their respective customer bases, which is particularly important in the context of an increasingly complex travel booking ecosystem.”
Should a demerger proceed, Webjet expects it to occur in FY25, with a decision still subject to shareholder approval.
Webjet’s latest annual profit result has lent weight to the proposal with the company’s operations achieving record results across key metrics.
Total transaction value (TTV) has risen 29 per cent to $5.59 billion, with WebBeds accounting for $4 billion of this total – up 42 per cent.
Guscic says the group is targeting TTV of $10 billion for WebBeds by FY30.
“WebBeds has become more significant to our hotel partners and travel buyer customers, selling more product to more customers in more geographies,” he says.
Group revenue of $471.5 million is up 20 per cent from a year earlier, while underlying EBITDA is up 40 per cent to $188.1million.
Webjet OTA has benefitted from strong growth in the international travel market due to improved flight capacity, with the company reporting that its international market share has increased 33 per cent since the pandemic and 14 per cent in the last 12 months.
“EBITDA improved 25 per cent during the year which is a remarkable result in challenging conditions where airfares are falling and commission structures for international flight bookings have diminished,” says Guscic.
However, trading has been subdued in the first seven weeks of the current financial year, which Guscic says reflects cost-of-living pressures.
“Notwithstanding those pressures, Webjet OTA has seen increased earnings year over year,” he says.
Despite the strong result, Webjet has not declared a dividend for FY24.
Webjet shares were sharply higher today following the strong profit result and the potential demerger, with investors pushing the stock up 15 per cent to a four-year high of $9.72.
At 10.27am (AEST), the shares had pulled back to be trading at $9.24 – up 80c or 9.5 per cent.
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