WEB enjoyed its strongest session in months yesterday after providing a more encouraging outlook for the first half of FY27. It was a welcome change following a very tough year or two, with the stock falling from above $8 in 2024 to as low as $2.30 earlier this month.
The company now expects WebBeds revenue to grow by 11–15% in euro terms during the six months to September, while its total transaction value margin is forecast to improve to around 6.7%, up from 6.5% a year earlier. Group underlying EBITDA is expected to land between $80 million and $86 million, broadly in line with the prior corresponding period but ahead of market expectations. Given the backdrop of elevated airfares, economic uncertainty and softer consumer confidence, the update was materially better than feared
Importantly, management has also put its money where its mouth is, announcing an on-market share buyback of up to $90 million. The program will be funded from existing cash reserves and is expected to begin in August. The board believes the current share price fails to reflect WEB’s trading performance, cash generation or medium-term earnings outlook, and the buyback represents a meaningful show of confidence.
The balance sheet is becoming very interesting if they can deliver on earnings in the coming few years. WEB is expected to finish FY27 with net cash of ~$280 million, rising to more than $500 million by FY29 on current estimates. If achieved, that equates to ~40% of its current market cap. Free cash flow is also forecast to improve materially over the next few years, supporting both the buyback and continued investment in growth.
Valuation is another part of the story. Even after yesterday’s rally, WEB is trading on around 14x forecast FY27 earnings and less than 7x EBITDA. If earnings recover as expected, those multiples fall quickly, with the stock trading on less than 9x forecast FY29 earnings, or if we strip out the cash, more like ~6x.
However, WEB is not without risk, the key concern for us remains revenue margin volatility. While management expects margins to improve in the current half, their track record here is pretty poor, with the quality and consistency of earnings a real issue. WEB also remains exposed to global travel demand, hotel pricing, airline capacity and broader consumer conditions, all of which can change quickly, and are outside of the companies control.
The AGM trading update on 27 August will be important. We’ll be looking for confirmation that bookings remain resilient, margins are improving and the stronger outlook is being converted into earnings. If we do eventually get a resolution out of the Middle East, and concerns around inflation and interest rates ease, we think WEB would be a major beneficiary – it could certainly be a great trade on the war ending.
We think yesterday’s 17% rally was justified. The earnings outlook was better than expected, the balance sheet is strong, and the $90 million buyback provides tangible support for the share price. After such a significant decline, the stock does not need everything to go right to deliver a recovery. It simply needs earnings expectations to stabilise and management to rebuild confidence in margins, and if we get a meaningful improvement in the macro backdrop, WEB shares could really get going.
- We are adding WEB to the Emerging Companies Hitlist
MM is bullish WEB ~$3.30
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