Webjet looks cheap, but the bad news may not be over

Webjet (ASX: WJL) has landed in that awkward category of stocks where plenty of value sits on the table, but deteriorating fundamentals could drag the share price lower still.

The stock tumbled 11.2% to a record low of 43.5 cents on Wednesday after the company delivered a triple blow of weaker-than-expected FY26 results, a soft FY27 trading update and a material cut to its commercial arrangements with Virgin.

The result in a nutshell

FY26 was soft at the operating line and well below consensus at the bottom line:

• Revenue up 1% to $136.4m vs $133.5m ests (2% beat)

• Total transaction volumes (TTV) down 3% to $1.46bn vs $1.43bn ests (2% beat)

• Underlying EBITDA down 20% to $28.1m vs $27.5m ests (2% beat)

• Underlying NPAT down 24% to $13.6m vs $17.4m ests (22% miss)

• FY26 total dividends of 4 cps, representing over 100% of underlying NPAT

The year-on-year trading update to 17 May was equally downbeat:

• Webjet OTA bookings and TTV fell 12% and 15% respectively, with international leisure demand continuing to shift toward short-haul Asian destinations and dragging down average booking values and TTV

• Domestically, leisure demand remains constrained by cost-of-living pressures, low consumer confidence and elevated airfares

• Direct-to-business bookings and TTV rose roughly 20%, though demand is moderating, particularly in international travel and ABV, after a resilient FY26

FY27 headwinds

Management was explicit that three headwinds will weigh materially on FY27 earnings.

1. Virgin Australia is scaling back its commercial arrangements with Webjet. The company estimates the hit at around $3 million in underlying revenue and EBITDA in FY27, before any mitigation.

2. The RBA's surcharging regulation changes take effect from October 2026. Roughly two-thirds of Webjet OTA's TTV currently flows through credit cards, leaving meaningful exposure to the new rules.

3. Variable revenue items that boosted prior years are set to unwind. These have ranged from ~$1-10 million over the past five years and sat toward the upper end this year. Management expects the contribution to normalise lower.

On the earnings call, management said the ambition of doubling TTV by FY30 remains intact, though the timing is under review given current industry headwinds.

Recent offers and balance sheet

Just six months ago, Webjet received non-binding, indicative takeover offers from:

• 21-Nov-25: BGH offered 91 cents cash per share

• 19-Nov-25: Helloworld Travel offered 90 cents cash per share

After 12 weeks of due diligence, neither converted into a binding proposal, and the board terminated talks.

At current prices, things get interesting. At 40 cents, Webjet's market cap sits around $190 million. The company carried net cash of $93.9 million as at 31 March 2026, has no borrowings, access to a $20 million revolving credit facility and net assets of $138.4 million.

That puts the enterprise value at roughly $98 million, with the stock trading at a little over 3.5x trailing EBITDA before ascribing any value to the recently acquired Locomote business or the Car & Motorhomes turnaround. The board appears to share that view, having resumed its $25 million on-market buyback that was paused during the takeover process.

The bottom line

Webjet is down 50% year-to-date and trades 53% below the 90-91 cent takeover offers. The company remains profitable, and its cash and net assets should provide a floor for the share price.

FY27, however, faces a wall of worries. On top of the headwinds above, the leisure travel cycle is clearly softening against a backdrop of weak consumer sentiment, the likelihood of further RBA rate hikes and elevated oil prices.

That leaves a 'what's next' question hanging over the stock, namely how much worse fundamentals can get, set against a balance sheet that offers plenty of leverage if conditions turn.