Company Overview - Flight Centre Travel Group Limited is an Australia-based company. The Company is engaged in travel retailing in both the leisure and corporate travel sectors and wholesaling. It operates in five geographical segments: Australia, United States, United Kingdom, rest of world and other segment. Its leisure brands include Flight Centre, Flight Shop, Escape Travel, Student Flights, Travel Associates and Cruise About among others. Its corporate brands include FCm Travel Solutions, Corporate Traveller, Campus Travel, cievents and Stage and Screen. Its wholesale brands include infinity holidays, explore holidays and gogo vacations. The Company also operates in other travel related areas, such as foreign currency exchange and travel academies, recruitment marketing and bike retailing, as well as employee benefit businesses, healthwise and moneywise. Its subsidiaries include Australian OpCo Pty Ltd, Flight Centre (UK) Limited and FC USA Inc.

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• TTV growth drove the overall performance: Flight Centre Travel Group Ltd (ASX: FLT) revenues improved by 6.8% yoy to $2.4 billion for the fiscal year of 2015, driven by significant total transaction value improvement by 9.7% yoy to $17.6 billion. Moreover, the group achieved a new TTV milestone across all of its 10 countries and regions. UK and Ireland, USA, South Africa and Singapore achieved record earnings before interest and tax during the period leading to >$100million overseas EBIT for the first time. Accordingly, the group’s statutory PBT rose 13.1%  yoy to of $254.8 million while statutory PAT surged 24% yoy to $256.6 million during the period. The group has built a diverse business streams, with corporate contributing 33.6% of group turnover in FY15. Over 4.5 million room nights were sold by the Australian business alone during the FY15. As per the tour operations highlights, Back-Roads, Top Deck and Buffalo contributed around $200 million turnover this year. Pedal Group JV generated around $56 million in sales and $3.2 million in EBIT during FY15, under the bikes segment. On the other hand, the group’s income margin fell by 40 basis points to 13.6% against pcp, impacted by decrease in commission earnings in Australia, accommodation TTV component recognition and change in product mix. Meanwhile, the group maintained its interim and final dividends at 55 cents and 97 cents respectively as compared to pcp. As per the balance sheet highlights, the Flight Centre’s general cash improved by 18.6% yoy to $564.7 million in FY15, and has over $1.4 billion of global cash and investment portfolio. The group was able to reduce its debt to $32.8 million during the period, as compared to $178.1 million in 2010. Operating cash inflow reached $362.5 million FY15, against $227.1 million in pcp.

 
           
 
           Flight Centre Travel group (Source: Company Reports)

• Australia division delivered modest performance despite TTV increase: The region’s TTV surged to $9.6 billion in FY15, from $9.1 billion in the corresponding period of last year. However the Statutory EBIT decreased to $272 million during the period, from $310 million in pcp impacted by higher costs related to wages and investments. Overall market growth also softened during the period with outbound travel increasing only by 2.9% yoy, as compared to 7% yoy increase in FY14. Leisure segment’s gross margins were also under pressure due to reduced demand from customers during the first half. But, the group said that its brands are currently stabilizing, and the group is also developing its niche areas like Cruiseabout, Student Flights and TMOZ. The firm’s International Airfares Packages (IAP), offered customers with Value and Premium inclusions to their flight bookings, during April which led to recovery in gross margins. 

       
       FLT Brands (Source - Company Reports)

• UK and USA Highlights: FLT’s UK and Ireland achieved a record TTV of GBP 1 billion for the first time, which led to a record EBIT of $49.5 million in FY15. Flight Centre launched new leisure product ranges like Journeys, unique and superior tailor-made long haul holidays, and Escapes, a mid to long haul beach holiday range. FLT is also planning to launch new hyperstores in Dublin (Dawson Street) and Chester by FY16. As per the USA highlights, TTV surged 18% yoy and contributed >$AUD2.5billion to the group’s top-line, leading to an EBIT rise by 69% yoy to $21.4million in FY15. US corporate travel businesses generated USD 1 billion in TTV (or $1.2billion), which is an increase of 30% against pcp driven by the  groups’ expansion efforts into new cities and improving market share in the world's corporate travel market. FLT is expanding into Raleigh and Minneapolis during FY16. Flight Centre also launched Campus Travel for academic community's unique travel needs and started new hyperstores in LA and Philadelphia. The group intends to open Chicago hyperstore and Manhattan megastore in FY16, and launch Travel Money FX business. FLT also started GOGO Travel Agents First and GOGO Care campaigns to boost wholesale sales to external agency groups.

      
      International Growth ( Source - Company Reports)
      

• Other Regional Highlights: FLT’s Canada and Mexico business is                 now a part of broader Americas business and had recently completed the Koch Overseas acquisition (Mexico City). However, the Canada business posted a loss after five years of consecutive profits and therefore FLT is reviewing strategies to boost performance, mainly in the leisure travel sector and implemented new leadership structure. On the other hand, South Africa leisure travel business achieved record profit and sales and even launched unique leisure products customized to customers travelling to main destinations including Mauritius and Thailand. New Zealand business also delivered solid TTV and even improved offerings by beginning a locally-based 24/7 service, responsive websites and an online booking engine for flights to Australia and the South Pacific. With regards to the InduAsia (which India, Dubai (UAE), Greater China and Singapore), the business delivered $870 million of TTV, with Singapore growing rapidly by TTV. Greater China business is also aggressively expanding through new brands, shops and websites plus landmark domestic ticketing licenses. New corporate businesses were started in India across Noida and Vadodora. New leisure hyperstores in Mumbai and New Delhi have also performed well. UAE delivered sixth consecutive full year profit, while new leisure shops were launched in Yas Mall (Abu Dhabi) and Dubai.

 
 
         
 
         Performance by Region (Source: Company Reports)
 

• Outlook and drivers ahead: Flight Centre estimates an underlying PBT in the range of $380million and $395million for the fiscal year of 2016, which is a 4% to 8% growth against the $366.3 million statutory PBT achieved during FY15. Meanwhile,  IATA has projected 4.1% compounding annual growth in passenger numbers globally through to 2034, while Airbus estimates that international traffic serving the Australia South Pacific region is estimated to grow annually at 4.5% to 2033. This potential market would offer huge opportunity to FLT in the long term. Moreover, even though Australia consumer confidence continues to be subdued for the short term, leisure travel is picking up with increasing customer enquiries than expected. Gross margins in Flight Centre brand have also recovered and niche leisure brands performance is also favorable. The group had entered into commercial agreements with some low cost carriers like Air Asia and Scoot in Australia, plus easyjet in the UK and JetBlue in the USA. FLT intends to address the gaps in its online product range by adding Air Asia and Tiger fares to the flightcentre.com.au website, along with additional Jetstar inventory and ancillary products. The group is launching an accommodation aggregation tool to offer its customers with access for over 400,000 properties globally, including hotels and apartments. Flight travel estimates a full year contribution from Top Deck as well as from the Koch business in Mexico. The group expects to expand its global sales network by 6% to 8%, which would lead to more than 1000 new jobs. FLT’s new hyperstores in Australia, the USA, the UK, Ireland and Asia would also continue to underpin its growth.

       
       Financial Summary (Source - Company Reports)

• Stock Performance: The shares of Flight Centre have delivered outstanding year to date returns of over 12% (as of Sep 11 close) despite the broader index S&P/ASX 200 decline of 6.2% during the same period. But the stock have corrected over 16% in the last three months as investors were worried that the tough market conditions would hurt consumer confidence and thus FLT’s business. On the other hand, the positive full year results addressed these concerns, and the stock resumed its growth, by positing an increase of 4.6% in last four weeks (as of Sep 11 close), although broader index S&P/ASX 200 fell by 5.8% during the same period. Flight Centre is offering new product ranges, and possess omni-channel capabilities and brand diversity. The group has a solid balance sheet and is well positioned to leverage rising demand. FLT is trading at relatively cheaper valuations, with a P/E of 14.4x, as compared to its peers like Webjet Limited (P/E of 17.8x). The group also has a strong dividend yield of 4.2%. Based on the foregoing, we give a “BUY” recommendation to the stock at the current price of $36.64.

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