Stock of the day: Webjet Limited

(AI video summary)

This video was created on 23 September for IG audiences by ausbiz.

Stock of the day: Webjet

ASX code: WEB

Suggestion: Hold

Details of Webjet's demerger

Webjet has recently finalised the separation of its consumer operations from its rapidly expanding wholesale bookings for women. This strategic decision, announced earlier in the year, is designed to split its consumer-facing activities from its wholesale operations.

Overwhelmingly supported by shareholders, with more than 97% in favour, this split facilitates the creation of two distinct Australian Securities Exchange (ASX) -listed entities. WEB Travel Group will now oversee the wholesale bookings, while the new Webjet Group will focus on the consumer side. This restructuring was ratified by shareholders last week, and the new entity is listed on the ASX today under the ticker WJL.

Market implications and sector analysis

The travel sector has seen a surge in activity, termed 'revenge travel,' following Covid-19 pandemic lockdowns, benefiting airlines and online booking platforms like Webjet. However, changes in consumer spending habits and the broader economic environment are likely to impact growth. Both Flight Centre and Webjet, which raised significant capital at the pandemic's peak, now face a market with increased share capital and cautious spending.

Strategic rationale behind the split

The market's positive reaction to the demerger, especially the business-to-business (B2B) segment, suggests optimism. However, the decision to split could indicate management's concerns about future challenges, hinting they believe the separate entities might be more valuable than as a combined operation.

Those interested in Webjet or similar travel-sector stocks might want to explore online trading options to access a wide range of markets.

Future outlook

Given the cyclical nature of the travel industry, the newly independent entities may experience different levels of market volatility. Current analyst recommendations lean towards a 'hold' strategy as the situation evolves. The consumer division might face more significant challenges and could become an attractive investment opportunity when it reaches a low point, aligning with classic cyclical investment strategies.

Investors considering Webjet's newly demerged entities should conduct thorough research and evaluate the potential risks as well as rewards. It may be wise to use tools like a demo account to refine trading strategies before investing real capital.