Why this expert is picking Webjet shares to ride the reopening to new heights

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The Webjet Limited (ASX: WEB) share price is attractive to Wilson Asset Management senior analyst Shaun Weick. The ASX travel share was one of the names picked out as opportunities.

Webjet has been through a lot of volatility since the onset of the COVID-19 pandemic. There has been pressure on the balance sheet as the business worked to reduce its cash burn to ensure it had enough money to get through to the other side of the lockdowns and closed borders.

But, we now seem to be through that tricky period and investors like Weick are becoming confident on the company’s outlook.

Expert view on the Webjet share price

Speaking on a recent WAM investment webinar, Weick said:

Overall, we are positive on the travel and entertainment sector. I guess, despite emerging consumer pressures, we think that the revenge spending continues. Consumers continue to allocate more of their spending towards services and travel over goods.

So the key stocks we like in the space are online OTA and B2B beds distributor Webjet. We believe they’ve made significant structural improvements in that business model that will underpin market share gains, and the operating leverage will deliver earnings well in excess of pre-COVID as we move through the other side.

What was in the latest ASX travel share update?

Webjet recently said that its online travel agency (OTA) business “continues to leverage our strong brand, scalability and superior technology to increase our market leadership as the number one OTA in Australia and New Zealand and we see opportunity to expand both our domestic and international market shares.”

In what could be a positive sign for the Webjet share price, the company revealed a few weeks ago that bookings were tracking at 95% and that all three of its businesses were profitable for FY23 so far.

The company noted that for WebBeds, bookings have been ahead of pre-pandemic levels since May, July was the record for total transaction value for WebBeds and August was higher than July. During the peak seasonal months of July and August, it hit its aspirational target of an earnings before interest, tax, depreciation and amortization (EBITDA) margin of 62.5%. WebBeds is also targeting $10 billion of TTV and it wants to grow in North America.

When will it hit pre-Covid profit?

Before COVID, it achieved EBITDA of $157.8 million. It has done a lot of work so that it will be more efficient, more profitable and with a higher market share when travel returns. It’s now seeing that strategy unfold.

Profitability could be a key factor for the Webjet share price as the recovery happens.

Management expects the business to beat pre-pandemic earnings in FY24, well ahead of when the broader travel market is expected to return to 2019 levels. Specifically, in its OTA business, it expects to return to pre-pandemic earnings levels once international airline capacity returns to 2019 levels.

The Webjet managing director John Guscic said:

We are excited for the limitless opportunities that lie ahead.

WebBeds has so much opportunity ahead of it. All the things we’ve done to transform the business means we are confident growth will continue for the remainder of FY23, despite all current well-documented macro headwinds.

Webjet share price snapshot

Over the last month, Webjet shares have gone up around 6%.

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