WTF is an online accommodation, flight and package booking provider.
Apart from its namesake website, the company also owns and operates lastminute.com.au and Asia Web Direct, among others.
The jewel in the crown for the company is its website wotif.com, which provides customers with heavily discounted accommodation, and accounts for 10% of all accommodation bookings in Australia.
The company earns commission on the value of the bookings as well as interest income on upfront payments from customers, which it holds for between 30 and 88 days before passing on to the accommodation provider.
Of note is that the company does not carry inventory unlike some of its riskier rivals.
Looking forward, the bulls argue that its dominant position will continue to drive increased market share. Earnings will also be augmented by their foray into other markets such as flights, car rental, insurance, and travel packages, where they will be able to capitalise on brand recognition.
The bears counter that despite first mover advantage, there are minimal barriers to entry for the industry and that a large overseas player, such as Expedia, could swoop in at any time and possibly usurp WTF’s dominant position.
Furthermore, they argue that they have yet to experience the full brunt of the slowdown in retail spending.
While these risks should not be downplayed, we have faith that the management team are not resting on their laurels, and in any event this is something we will keep a close eye on for our clients.
Profitability is exceptional with return on equity averaging 57% for the past three years.
The company carries no debt and is in the fortunate position of having negative working capital, arising from the upfront payments of customers.
According to our numbers for FY14, WTF is trading on a prospective 18 times earnings and paying a gross yield of 7.4%.
For more information on Wotif.com Holdings Limited (ASX: WTF) please contact us on 07 4771 4577.