Flight Centre Travel Group Limited

Increased Director’s Interest In FLT: Flight Centre Travel Group Limited (ASX: FLT) comprises travel retailing in both the leisure and corporate travel sectors, plus in-destination travel experience businesses including tour operators, hotel management, destination management companies and wholesaling.

Recently, the Company disclosed to ASX that one of its director Robert Anthony Bakerwho had an indirect interest in the Company, acquired 1000 shares with a value of $38,530 via On-market Purchase, taking the final holdings to 3500 shares. In another update, FLT announcedamendments in FY19 Guidance, where first half trading patterns are expected to continue into the second half with sales tracking at record levels and the company again performing strongly in the corporate travel sector globally and in most key markets including the United States (USA), the United Kingdom (UK) and Asia.

Losses in the “Other” segment are expected to increase significantly in the second half as compared to pcp, offsetting the record profit contributions from FLT’s international businesses.Underlying profit before tax (PBT) for the 12 months to June 30, 2019, is likely to be between $335 Mn and $360 Mn lesser than previous guidance of $390 Mn-$420 Mn range in October.

Financials: Globally, 1H TTV increased by 10% to a record $11.16 Bn as the company again surpassed its 7% compounding growth target through to the end of FY22.Underlying PBT increased modestly to $140.4 Mn and was within FLT’s targeted range for the period ($140 Mn-$150 Mn).


H1FY19 P&L Statement (Source: Company Reports)

What To Expect: It is expected that the company’s overall result for FY19 would be disappointing. The company’s management had stated that short-term results would be below the initial expectations but there are also some of the promising signs for the future.

Stock Recommendation:Flight Centre’s share generated negative YTD return of 4.29%. Its gross margin for H1FY19 stands at 93.6% better than the industry median of 57.7%, which implies its better position to address its operating expenses than its peer group. It reported a higher dividend yield of 7.1% (Trailing 12 months (TTM) basis) as compared to the industry median of 3.4% representing more income for its shareholders.
 
Hence, considering the mixed updates and current trading level, we suggest that the market players should watch the stock at the current market price of $39.270 per share (up 1.342% on May 3, 2019).
 

Metcash Limited

Strategic Update For its 3 Business Divisions: Metcash Limited (ASX: MTS) is a leading wholesale distribution and marketing company with three business divisions i.e. food, liquor and hardware. The company recently announced strategic updates for its three divisions. Its liquor division is positioned at number 2 in the mature market, and a new CEO is expected to commence the office in early FY20. Its Hardware division is also positioned at number 2 in the market with strong trade focus. There is more favourable market structure following the exit of Masters and acquisition of HTH.

Its food division is positioned as an alternative to majors as an independent, active in their communities, convenient and differentiated player. High rate of deflation and roll out of competitor footprint have adversely impacted the results.
Financials:Reported Group sales (which now exclude charge-through sales) increased by 2.2% to $6.2 Bn. Sales growth was achieved in all three divisions (Food, Liquor, and Hardware). The Group’s EBIT increased by 1.2% to $158.1 Mn. Food EBIT increased by 2.4% to $93.0 Mn; Liquor EBIT declined by 1.0% to $29.1 Mn; and Hardware EBIT increased by 34.0% to $37.8 Mn. Its net debt is below the target gearing ratio, and it is well positioned with the capacity to fund current growth plans.


H1FY19 Financial Metrics across three divisions (Source: Company Reports)

What To Expect: Highly competitive market conditions in food businesses are expected to continue through the balance of FY19. Slowdown in the rate of decline in non-tobacco sales and progress on key initiatives in the first half is encouraging for the company. Working Smarter savings are expected to help mitigate the impact of difficult market conditions and cost inflation.

Volume growth in Liquor business over the balance of FY19 to continue to be at modest levels due to the on-going trend of ‘premiumisation’.In the hardware business, full synergy benefits from the acquisition of HTH expected to be realised by the end of FY19.

Stock Recommendation: Metcash’s share generated positive YTD return of 21.01%. Its net margin for H1FY19 stands at 1.5% which is slightly below to the industry median of 1.7%. Its ROE for H1FY19 stands at 7.6% better than the industry median of 5.6%, which implies the company offered better return to its shareholders than the peer group. Its current ratio for H1FY19 stands at 1.13x better than the industry median of 0.83x, which implies its ability to address its short-term obligations. The annual dividend yield for the stock comes in at 4.69%, representing more value for its shareholders.

Hence, considering the aforesaid facts and current trading level, we recommend a “Hold” rating on the stock at the current market price of $2.89 (up 0.347% on May 3, 2019). 

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