UBS has this morning resumed its coverage of Webjet with an upgrade to buy from neutral following its acquisition of Zuji and its results for the first half of 2013.
UBS believes the Zuji acquisition plus packaging upside offset execution risks and slower Australian growth.
"As the Australian air online travel agency market matures, we believe Zuji will be a key growth driver for Webjet via 1) increasing its exposure to Asian leisure travel and online penetration growth, and 2) providing a springboard for the build-up of direct hotel inventory to lift non-air booking margins over the next three years or so”, it said in a note to clients.
UBS also thinks Webjet’s early-mover position in dynamic packaging represents additional potential upside if predictions of Australian consumers embracing online holiday packaging materialise.
The broker upgrade was premised on relative valuation and growth prospects. It estimates that Webjet’s underlying business is trading on a FY14e P/E of around 15.3 times versus an ASX industrials ex financials of 15.5 times.
UBS believes Webjet deserves to trade at a 10-15 per cent premium to the sector given its stronger growth prospects and upside from its Zuji acquisition.