Flight Centre Travel Group Limited

FLT Details

Flight Centre Travel Group Limited (ASX: FLT) is primarily engaged in 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.

Trading Update: In a recent announcement, containing the Managing Director’s address at the 2019 Annual General Meeting, the company provided details on the year-to-date trading for the first four months of FY20, i.e., for the period ended 31 October 2019. During the said period, the company saw its bottom-line results being impacted by issues and disruptions similar to the second half of FY19. Some of the external challenges the company has been facing, include the trading cycle in Australia and its impacts on demand for leisure travel, the recent unrest in Hong Kong and uncertainty relating to Brexit in the UK. However, the company does possess a safety shield against the above challenges, in the form of its geographic and brand diversity.

During the first quarter ended 30 September 2019, Total Transaction Value (TTV) increased at a rate of 11.4% globally and reached record levels in each of its geographic sectors, including ANZ, EMEA, Asia, and the Americas. Despite the subdued trading climate, the company reported decent growth of 5.7% in Australia, backed by results from the Travel Money foreign exchange business and new & emerging businesses. Corporate brands generated around 40% for the TTV in the first quarter, reporting a growth of 18% in corporate TTV on pcp. EMEA and the Americas reported corporate TTV growth of 36.2% and 27.6%, respectively. In Asia and ANZ, corporate TTV witnessed a growth of 11.6% and 1.7%, respectively.


TTV Growth (Source: Company Reports)

Business Highlights: In the FCM business, the company won accounts with TTV in the order of $500 million globally, so far. First quarter TTV in the leisure sector witnessed an increase of 4.5% globally. In Australia, the company has seen a recovery in in-store gross margins in leisure travel. The company’s new and emerging businesses are gaining scale and making a meaningful TTV contribution.

Outlook & Guidance: As a result of challenging first quarter, the company expects underlying EBITDA for the half year ending 31 December 2019 to be lower than pcp value of $140.4 million. The company, however, did not provide an exact estimate for profits in the first half due to the uncertainty with respect to some important geographies and like-for-like trading conditions in Australia. The management believes that the performance in November and December is likely to provide more meaningful insight into FLT’s progress. 1HFY20 underlying PBT is expected to be in the range of $90 million to $110 million. Australian leisure business and the other segment are believed to be the primary reasons for the decline. Full year underlying PBT is expected to be between $310 million - $350 million, with the top end representing growth of 2% on pcp.

Stock Recommendation: The stock of the company generated negative returns of 9.60% and 4.07% over the period of 1 month and 3 months, respectively. Currently, the stock is trading below the average of its 52-week trading range of $37.590 - $49.140. The company currently has an EV/EBITDA multiple of 7.1x, which is lower than the industry median of 7.8x. EV/Sales multiple for the company stands at 1.0x, slightly lower than the industry median of 1.3x. Despite profits in FY20 being prone to several challenges, the company has continued to achieve record TTV and is on track to top $10 billion in TTV in FY20. Growth in TTV will be assisted by rapid increase in market share and increased traction in new and emerging businesses. Moreover, a large pipeline of account wins is expected to provide a solid platform for the full year. Considering the performance in terms of TTV, growth in market share, growth prospects on the back of new business wins, valuation metrics and current trading levels, we give a “Buy” recommendation on the stock at the current market price of $40.070, down 5.473% on 07 November 2019 on account of FY20 guidance update.

 
 FLT Daily Technical Chart (Source: Thomson Reuters)

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