Wotif.com Holdings - Unexpected increase in prices a positive
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Investor
November 2012
Edge
Wotif.com Holdings – Unexpected
increase in prices a positive
Wotif.com Holdings (WTF) is a leading online accommodation bookings provider with an approximate
35 percent market share in Australia. The service allows customers to book rooms at a heavy
discount and at the same time gives hotels better management of their short-term inventory.
Wotif.com recently announced plans to lift its
commission rates by one percentage point from
1 January 2013. This will be followed by a further
lift of the same amount on 1 January 2014.
With just over $1 billion in booking revenue, the
extra percentage adds over $10m in revenue
and utilising the 59% operating margin achieved
in FY12, implies a potential boost in pretax
income of $6 million.
Wotif.com’s biggest draw card for domestic
hoteliers is they have nothing to lose by
advertising on the site. The site was created to
act as an aggregator of distressed vacant hotel
inventory. If a client books a stay through the
site then Wotif.com pays the hotelier for the
amount of the stay minus a margin that they
take on the way through. This margin was set
at 10%, which compares favourably to some
traditional wholesale accommodation rates
which are closer to 20%. Low rates and an
efficient mechanism to obtain a return from
what would be vacant rooms, have driven
strong support from hoteliers.
The wotif.com.au brand is now established as
a portal of choice for consumers seeking value
when booking accommodation.
sfg.com.au Financial Group
Shadforth Financial Group Limited ABN 27 127 508 472 AFSL 318613
318613.
Wotif.com Holdings – Unexpected
increase in prices a positive
continued…
Brand awareness within the population a strong enough incentive to continue to direct General Meeting. The strong Australian dollar
continues to gradually grow from the 30% available inventory to the site. remains a recurring feature that is influencing
range in 2005 to now around 60%. This the Australian leisure market. A strong dollar
The WTF booking window, which was initially
translates into 5.1 million visits to the site encourages domestic travellers to head
seven days reflecting distressed inventory,
and 258,000 bookings per month. offshore to take advantage of their strong
gradually expanded to 28 days, then three
purchasing power, while inbound travellers are
We do not expect hoteliers to change their months and is now at six months. The
discouraged by the comparative weakness
advertising habits on the imposition of increase in the booking window coincided
of their own currency. WTF expects this to
the increased booking commission. The with growing inventory as hoteliers now view
continue for the forseeable future.
combination of accessing the most widely used the site as less of a clearing agent and more
website to book domestic accommodation of a must do to reach a sizable audience. While the share price rallied after the
with high monthly visitation statistics and a unexpected lift to commission rates, Wotif.com
Wotif.com recently provided an update on
comparatively low wholesale charge provides is still worth considering at current prices.
the current trading environment at its Annual
Investor Edge
A closer look at Seek Holdings
Seek Holdings (SEK) operates
in three market segments:
domestic jobs; education; and
offshore jobsites.
The core earnings driver of the business
remains the domestic website ‘seek.com.au,’
which captures 83% of time spent online
searching for jobs. This contributes 80% of
earnings and 60% of revenue, generating an
impressive EBITDA margin of 62%.
Seek Holdings (SEK) operates in three market
segments: domestic jobs; education; and
offshore jobsites. The core earnings driver of
the business remains the domestic website markets. We expect employment conditions The generational transformation of the print
‘seek.com.au,’ which captures 83% of around the world to remain under pressure media industry to a digitised format continues
time spent online searching for jobs. This from deterioration in economic growth. With to gather momentum, as new tablet, phone,
contributes 80% of earnings and 60% of the total size of the market declining, SEEK is and internet subscriptions aim to supplement
revenue, generating an impressive EBITDA extracting a higher share as the structural shift and eventually replace newspapers. Media
margin of 62%. from print to online gathers pace. companies that were late to embrace the online
medium are now channeling more capital into
Built through the first mover advantage, the Education contributed 11% of earnings in
this space to take back share. Despite this
website has become the dominant portal FY12 and we forecast this to grow to around
action, we view classified revenue as now
within the Australian market. The second place 15% over the next few years. SEEK leverages
firmly entrenched online through three separate
competitor, CareerOne, captures 9% of total its core database of jobseekers to add some
Australian web portals. Audiences naturally go
time spent online, with third placed MyCareer counter cyclicality to its revenue stream. The
to these web sites when searching for vehicles,
with 8%. education division generates upfront revenues
real estate or jobs and they are: carsales.com.au,
as students enroll. Upfront revenue drives near
SEEK has over 14 million site visits per month, realestate.com.au and seek.com.au.
term returns but the larger student numbers
more than five times its nearest competitor.
require a higher cost to operate through SEEK’s high returns on invested capital are
Market share dominance is retained by the
employing more teachers. This delay between impressive and averaged 26% over the past
network effect, with advertisers and job seekers
cash in and cost out led to the sudden four years and are forecast to average 36%
attracted by accessing the largest audience of
contraction in FY11 returns. After a full review over the next five years. This is well above
job seekers and job advertisers.
of the division, SEEK is now confident it has the weighted average cost of capital of 11%.
SEEK continues to have a dominant position the required systems and resources within SEEK is an attractive investment opportunity at
in the domestic jobs ad market and is building the educational platform to cater for expected current levels.
strong positions in selected international growth in course enrolments.
Woolworths Property Spin-Off
Woolworths (WOW) recently SCA Property Group will be created via an in- If the proposal proceeds, the net tangible
specie distribution. Woolworths shareholders assets per stapled unit is expected to be
announced a proposal to create will receive one stapled unit in SCA Property $1.58. The forecast yield for SCA Property
Group for every five Woolworths shares held Group is 6.9% to 8.3% for FY14, depending
Shopping Centres Australasia on the record date (30 November 2012). on the final offer price.
Any fractional entitlement will be rounded
Property Group (SCA Property down to the nearest whole number of stapled
SCA Property Group plans to raise an additional
$425m to $506m of equity via an issue of
units. The financial impact is not expected
Group), a Real Estate Investment approximately 337m stapled units at an offer
to be material due to the relatively small size
price of $1.26 to $1.50 per stapled unit. Eligible
Trust owning a portfolio of of SCA Property Group when compared to
Woolworths shareholders will receive priority
Woolworths’ total business.
in the equity raising. The final offer price will
Australian and New Zealand Woolworths will transfer its current be established by an institutional bookbuild
shopping centres. ownership of 69 neighbourhood, sub- conducted following the annual general meeting
regional, and freestanding shopping centres on 22 November 2012.
to SCA Property Group. These centres have
There is uncertainty around medium to long-
been independently valued at $1.4 billion.
term rental income growth.
sfg.com.au
Woolworths Property Spin-Off
continued…
For specialty tenants (around 40% of Dan Murphy’s (5)], the offer document to the tenant’s revenue growth, with recent
gross income), Woolworths is providing a provides little insight into how much rents trends in same store sales subdued.
rental guarantee to cover vacancies for will grow. For 37 of the supermarket and
There is considerable uncertainty for
two years from November 2012 and for Big-W stores, base rents rise by a minimum
Woolworths shareholders in deciding
all specialty tenancies in the development of 5% at 5-yearly reviews (equivalent to
whether to apply for additional SCA Property
portfolio for two years after completion of the 1% per annum). This is very low compared
Group stapled units. We do not believe
development. When these specialty rental to escalation in typical specialty leases of
SCA Property Group represents good value
guarantees lapse over the next 3.5 years, around 4% per annum or CPI plus 1.5%.
relative to peers unless shareholders are
specialty rental income could decline by 5% For these 37 WOW stores, rent growth could
able to secure stapled units at the lower
or more if vacancies aren’t filled or if market exceed the 1% minimum if sales exceed an
end of the $1.26 to $1.50 price range. As
rents contract in the interim. undisclosed threshold and turnover rent is
the pricing for SCA Property Group will be
payable. For the remaining 42 Woolworths
Woolworths tenants contribute around 60% determined by an institutional bookbuild
stores, it appears that rents only increase if
of gross income. Tenants pay base rent plus after retail applications have closed, there is
sales exceed the threshold and turnover rent
turnover rent if sales exceed an undisclosed no assurance that the stapled units can be
is payable. The main takeaway is that rental
threshold. For most of the Woolworths purchased at this price.
growth from these stores is highly correlated
tenants [Supermarkets (65), Big-W (9) and
Investor Edge
The United States election and the
‘Fiscal Cliff’
With the United States (US)
elections over and President
Obama winning re-election,
financial markets are focusing
on what the US will do with the
much media hyped ‘fiscal cliff’.
This will continue to dominate the
The above mentioned tax increases and the US to raise its debt ceiling, as the current
media until the end of the year
spending cuts would likely see US economic spending rate would see the ceiling reached in
and could cause volatility and growth fall from the current level of around the first quarter of 2013.
2% per annum into the negative, that is, put
It is expected that US politicians will reach
angst on global sharemarkets. the US into recession. The Congressional
a compromise, as no one will want to be
Budget Office recently reiterated that jumping
responsible for putting the US economy into a
off the cliff would boost the jobless rate to
Obama now faces a series of negotiations with recession. As a result, they are likely to build
9.0 percent from the current 7.9 percent.
a Republican dominated Congress to avoid the ‘safety fences’ around the top of the fiscal cliff.
so-called fiscal cliff, which would result in more The US deficit this year is projected to reach The next step is most likely to be a temporary
than $600 billion in tax increases and spending $1.1 trillion, marking the fourth consecutive extension to the expiring tax cuts and a delay to
cuts on health and defence next year that would year the government has run trillion-dollar the spending cuts, probably of six months. This
significantly slow US economic growth. Unless shortfalls. Federal debt has climbed more than will provide time for both parties to negotiate a
Congress acts, automatic spending cuts will 75 percent in the past four years and now long-term plan for economic growth and debt
begin in January and the Bush tax cuts will stands at around $11.3 trillion. Soon after reduction. A resolution to a fiscal cliff would be
expire on 31 December 2012. the fiscal cliff comes, there will be a need for positive news for global sharemarkets.
Shadforth Financial Group Ltd AFSL No 318613, is a wholly owned subsidiary of SFG Australia Limited ABN 81 006 490 259 (SFG). This document contains general advice and/or information prepared
without taking into account your investment objectives, financial situation or needs. You should, before taking any action, consider whether any general advice is appropriate having regard to your financial
objectives, situation or needs. This document has been prepared in good faith and with reasonable care. Neither SFG nor any other person make any representation or warranty, express or implied, as to the
accuracy, reliability, reasonableness or completeness of the contents of this presentation (including any projections, forecasts, estimates, prospects and returns and any omissions from this document). To
the maximum extent permitted by law, SFG and their respective officers, employees and advisers disclaim and exclude all liability for any loss or damage (whether foreseeable or not foreseeable) suffered
or incurred by any person acting on any information (including any projections, forecasts, estimates, prospects and returns) provided in, or omitted from this document. We recommend that you consult with
your own legal, tax, business and/or financial advisers in connection with any investment decision.
1300 308 440
sfg.com.au
JO141112-1
/ShadforthFinancialGroup @Shadforth_Aus /Company/Shadforth-Financial-Group-Ltd /User/ShadforthFG
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