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In today’s daily we have covered stock research on Flight Centre (HOLD).
The S&P 500 was down by 6.21 points or 0.29% on Tuesday and closed at 2099.12 points. U.S. stocks ended lower on Tuesday after a recent run-up in global bond yields unsettled investors already concerned about an eventual Federal Reserve interest rate hike. Stocks recovered from steeper losses after Treasury yields crept back slightly from six-month highs. Benchmark 10-year U.S. Treasury yields touched their highest since mid-November earlier before coming down slightly. Elevated U.S. yields mean higher borrowing costs, which can make it harder for companies to expand. The recent, unexpected leap in yields on U.S. Treasuries and German Bunds has been a thorn in the side of U.S. stock investors for several days.
AOL shares jumped 18.62 percent to end at $50.52 after Verizon Communications said it would buy the company in a $4.4 billion deal, or $50 per share. Verizon declined 0.36 percent. Apple, the biggest contributor to losses on the NASDAQ and S&P 500, dipped 0.36 percent. The S&P energy index gained 0.44 percent as oil prices rose about 3 percent due to a weaker dollar and conflict in Yemen. AOL and its properties, including the Huffington Post, TechCrunch and Engadget websites, would become a Verizon subsidiary, with AOL Chief Executive Officer Tim Armstrong staying in his job. The companies announced the deal on Tuesday. Gap said sales fell 3% in the first quarter, weakened by foreign-exchange rates and as a sales decline at Banana Republic and its namesake stores accelerated from the year-ago period. The retailer’s shares declined 3.4%.
AOL Daily Chart (Source - Thomson Reuters)
S&P ASX 200 was up by 49.50 points or 0.88% on Tuesday and closed at 5674.70 points.NAB returned to the market after raising $2.7 billion from institutional investors. The shares last fetched $34.78 on Wednesday before trading was halted. NAB fell 0.7 per cent to $34.54, only partly following the large decline in bank stocks that has taken place since then, amid some positive sentiment around the bank. Among the other banks, ANZ lifted 1.5 per cent to $32.41,Commonwealth Bank added 0.8 per cent to $82.88 and Westpac added 1.1 per cent to $34.06.
BHP firmed 2.2 per cent to $32.53 and Rio Tinto climbed 1.1 per cent to $59.25. Fellow blue-chipTelstra lifted 1 per cent to $6.11, rebounding strongly from an early morning low of $5.95 - the first time the telco's stock traded below $6 since January. Qantas shot up 7.2 per cent - its highest since September 2008 – after the airline said it expected its fuel bill this financial year to be $550 million lower than 2013-14, coupled with $875 million in benefits to flow from its so-called transformation plan by the end of June. Building products group CSR soared 7.7 per cent to $4.04 after reporting an 82 per cent surge in underlying full-year profit to $146.5 million as booming new home construction boosts sales. Explosives giant Orica has downgraded its guidance and raised the possibility of cutting its ammonium nitrate supply as it reported a 3 per cent drop in half-year profit to $211 million.
CSR Daily Chart (Source - Thomson Reuters)
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Stock Of The Day - Flight Centre (HOLD)
Flight Centre Travel Group Ltd (ASX: FLT) was featured in the February 2015 issue of Forbes Asia considering the insights that the group now dominates the travel agency business in Australia with a 40% market share and 1400 stores located in most major malls and high streets. It now operates in more than 10 overseas countries China, the UK, the US and Singapore. In FY 2014, revenues of more than $2 billion were generated on travel business in excess of $13 billion resulting in a net profit of $190 million. Significantly, it has prospered while many of its competitors have been ravaged by the Internet but FLT is quick to point out that the Internet has been major competition for the last two decades and that it offers a blended model including a website for online bookings. However, the major strategy has been to expand into corporate travel, leisure travel and other services such as accommodation all of which offer higher margins. Geography and brand diversity are an integral part of the strategy.
With regards to the results for the half-year ended 31 December 2014, TTV has grown by 8.8% from $7.48 billion to $8.13 billion resulting in a 4.6% increase in revenues from $1.05 billion to $1.10 billion. Net margin has declined by 30 basis points from 2% to 1.7% and, consequently, underlying profit before tax has declined 5.9% from $146.3 million to $137.6 million and actual profit after tax by 9% from $155 million to $141 million. There has been no increase in the interim dividend payment which remains at 55 cents per share.
Year-to-Date Results Summary (Source: Company Reports)
Record sales were reported with new milestones being established for each one of the 10 geographical regions of operations. Growth in overseas markets contributed strongly to profits with the UK, China, Singapore and South Africa all reporting record profits. Business in Australia was affected by a difficult business environment and, despite an increase in sales, profits were unable to touch the record figure of FY 2014. Shop growth at 4% was just below the target figure and new hyper stores were launched in Australia, USA, India and Abu Dhabi. Management guidance for the full year FY 2015 are at a target of $360 million to $390 million for underlying PBT because of the opportunities for accelerated growth in the second half and early signs of a recovery in Australia.
The portfolio of global cash and cash equivalents exceeded $1 billion at December 31 2014 and included $429.4 million in company cash (previous year: $401.9million). Debt amounts to $31.9million (previous year: $44.6million) at the end of the period and the group produced its overall interest costs by repaying $19 million in borrowings in India. The company finished the half year with a positive net debt of $397.5 million compared to $357.3 million in the previous year. Cash flow followed its typical, seasonal cycle amounting to a $68.1 million operating cash outflow during the first half (previous year: $124.5 million outflow).This lower outflow was largely because of the normal airline payment cycle's (BSP) timing in both periods which meant that the company had a larger accumulation of cash on 31 December 2014 because of the payments due to airlines. The dividend of $0.55 per share was in line with the dividend of the previous year and represents a payout of 55.2% of actual NPT.
Results by Country (Source: Company Reports)
Generally speaking, profits were in line with the previous year though leisure profits were lower than expected. This was because of reduced margins to stimulate sales to consumers, softer overall demand and increased investments and wage increases. Strategies to improve the position include further vertical integration and new product development, more effective marketing and traveller engagement and enhanced productivity measures. Company priorities include generating better quality enquiries, refocusing the role of consultants, fine tuning product strategies and developing websites to completely complement the bricks and mortar business.
Theme (Source: Company Reports)
The company has recently announced for an acquisition in Mexico in which it is acquiring a corporate travel management business named Koch Overseas de Mexico. The Mexican business has, since 2006, operated as an independent corporate travel licensee and this step forward to full ownership expands the presence in the Americas. It would be fair to say that the corporate travel business has proved to be remarkably robust and advances in technology such as videoconferencing have not really had a negative impact on business travel.
Overseas 1H TTV and EBIT (Source: Company Reports)
It is true that the long-term fundamentals of the company are sound even though the current P/E ratio is slightly higher than the average for the S&P/ASX 200 index. Operations have continued to be profitable though margins and earnings are under pressure. The balance sheet is strong and the net debt position shows a positive cash position of just under $400 million. However, we see that the future earnings are also dependent on the recovery of the Australian and the global economy. Accordingly, any great upside is only expected with the improvement in the economy as of now.
FLT Chart (Source - Thomson Reuters)
We are therefore classifying the stock as a Hold at the current price of $44.96.
Level 13 167 Macquarie Street
Sydney NSW 2000 Australia
E-Mail - [email protected]
Phone - 02 8667 3147
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