A closely watched government report on employment due on Friday is expected to show weather weighed on jobs growth for a third straight month in February, although not as heavily as in the prior two months. Freezing temperatures have also weighed on home building and retail sales. The Federal Reserve said on Wednesday severe weather had led to slower growth or outright contraction in some areas of the country in recent weeks.


S&P Daily Chart (Thomson Reuters)
 
S&P ASX 200 was down 0.3 points or 0.01% and closed at 5445.90 points on Thursday. Australia and New Zealand Banking Group will appeal the Federal Court’s controversial ruling last month that it charged “extravagant, exorbitant and unconscionable” late-payment fees on credit cards, challenging a decision that threatens to cost banks tens of millions of dollars.

Myer is standing by its $3 billion merger proposal for David Jones amid growing skepticism the rival department store chains can reach a deal that satisfies both sets of shareholders. The world’s third-largest gold producer, AngloGold Ashanti, is aiming to further drive down costs across its operations as it formally opened the nation’s fourth largest goldmine in Western Australia on Thursday. Carsales said on Thursday it would buy 49.9 per cent of the online assets of South Korea’s largest automotive trading business SK Encar.


ASX 200 Daily Chart (Source – Thomson Reuters)
 
 
 
 
Stock of the Day – Flight Centre (FLT)
Flight Centre is Australia’s largest listed travel agent with operations throughout Australia and New Zealand as well as in South Africa, Hong Kong, Canada, United States and the United Kingdom. The firm has 15% of the Australian travel market which generates 80% of profits. Flight Centre offers a full travel service, focusing on flights, holidays, car hire, accommodation and travel insurance.

Flight Centre reported a strong result with first half fiscal 2014 profit before tax increasing 13% on the previous corresponding period. Total transaction value increased 13.5% to a record AUD 7.5 billion which drove a revenue increase of 15.1%. Pleasingly Australian outbound travel accelerated during the half despite the weaker Australian Dollar.


Source – Flight Centre

While the company has several avenues to grow earnings, its increasing size will make the double digit growth achieved historically more difficult to maintain going forwards. At the current stock price we believe the market is assuming more optimistic growth outlook than we believe is realistic. Its nationwide 1300 store footprint delivers significant scale that translates into cost advantages and a powerful network effect. It is highly recognized and trusted brand with significant brand equity. The company has also benefited from a trend by corporations to outsource travel management to avoid administration costs.


FLT Daily Chart (Source – Thomson Reuters)

Flight Centre continues to maintain strong balance sheet. Net cash excluding cash held in trust for client accounts was AUD 357.3 million at 31 December 2013 an improvement on the AUD 272.9 million net cash position 12 months earlier. Despite increasing the dividend the dividend payout ratio remains 50%. The low payout ratio is due to the company policy of maintaining sufficient funds to cover three months of operating expenses. We like the Flight Centre story but find the stock too expensive at current price.

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