Monday, June 22, 2009

GFC presure finally comes to WTF - analyst rates as "under perform"

Wotif Group (ASX:WTF) has been a stand out Australian stock for as long as anyone can remember. Well at least since March 2006 when it burst onto the market at a pre-float price of $2.00 but closing the first day at $3.32. Has been a roller coaster ride since then. The first two years was all up up up, topping out at just below $6 a share. Then early to mid 08 saw a slump back below $3 a share. Recently the stock has rallied with the rest of the market to be around the $4.50 range ($4.50 close yesterday). Throughout that time I have not seen an analyst say a bad word about the stock (despite a P/E ratio in the twenties).

Now today we have a different voice. Senior Analyst at LINWAR securities James Bales has just published a research note on Wotif called "Check Out Time". In that note he sets a target price of $3.70 - 18% less than the current value. I can't share the whole research note with you as that is something LINWAR reserves for the clients but I can share some of the top level conclusions that Bales used to support his rating of Under Perform. Here are some extracts from his conclusions
"WTF trades on a significant premium to our DCF valuation. It also trades on a premium to larger well-performed global online travel peers in an industry which rewards scale.

Industry estimates of Average Daily Rate (ADR) declines are approaching double digit levels worldwide. The decline may be more moderate in Australia but Wotif expected low single digit rate decline in 2H09. Intense rate pressure has meant hotel chains are seeking ways of discounting prices without impacting brand - OTA’s offer this capability.

It appears Asian destination markets are holding up well [for WTF]– eg: Thailand, Bali. Source markets such as China post-Olympics and Japan appear weaker. In these areas global giants have a significant advantage over WTF. WTF is trying to grow an Asian business with no local language capability and just one small existing market (AU/NZ) from which to draw clients."
That said, Bales still supports the profit estimates from Wotif. As he says
"NPAT guidance of at least $42m was in line with our forecasts. This is no surprise given US 1Q09 results from Online Travel Agents (OTA’s). Our forecasts are unchanged, anticipating strong growth in FY10."
I agree with James analysis, especially on international expansion. That said hard to be too negative about a company that just upped its full year forecast.

That do you think? Will there finally be pressure on Wotif coming or is $4.50 a share just fine thank you very much?

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