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Mid-Cap

Two Bargain Stocks to Buy - Flight Centre + Ozforex Group

September 27, 2015 | Team Kalkine
Two Bargain Stocks to Buy - Flight Centre + Ozforex Group

Flight Centre Travel Group



Significant TTV growth: Flight Centre Travel Group Ltd (ASX: FLT) revenues rose 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. Flight Centre attained a new TTV milestone across all of its 10 countries and regions. Moreover, the group’s international markets, 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. As a result, FLT delivered a statutory PBT increase of 13.1% yoy to $254.8 million while statutory PAT surged 24% yoy to $256.6 million during the period. Meanwhile, around 4.5 million room nights were sold by the Australian business alone during the FY15. In tour operations segment, 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.
 
Solid Balance sheet: 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.
 
 
TTV and EBIT (Source: Company Reports)
 
Long term potential despite short term pressure: Flight Centre estimates an underlying PBT in the range of $380million and $395million for the fiscal year of 2016, which is a modest 4% to 8% growth against the $366.3 million statutory PBT achieved during FY15. On the other hand, the group’s addressable market is also improving as 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. Although, Australia’s consumer confidence continues to be subdued for the short term, this decrease would be offset by the improving leisure travel market and customer enquiries. Gross margins also recovered among Flight Centre brand while niche leisure brands performance has been favorable. Flight Centre 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. The group is also focusing on 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.
 
Stock Performance: FLT shares fell over 16.3% over the last six months on the back of investors’ concerns on the impact of current tough market conditions on consumer confidence and thus FLT’s business. But, better than estimates full year results addressed these concerns, and the stock continued its growth, by positing an increase of 10.3% in last four weeks (as of Sep 25 close), although broader index S&P/ASX 200 fell by 5.8% during the same period. The group is also trading at relatively cheaper valuations, with a P/E of 13.4x and has a strong dividend yield of 4.5%. Based on the foregoing, we give a “BUY” recommendation to the stock at the current price of $35.43.
 

FLT Daily Report (Source: Thomson Reuters)
 

OzForex Group Limited



Reorganization of Leadership Team and Forward Growth Strategy: OzForex Group Limited (ASX: OFX) has recently appointed Craige Pendleton-Browne as its chief technology officer. Pendleton-Brown is a Telstra Health Executive and has been successful in building teams in News Corp and iCarehealth. Similarly, Adam Smith has been appointed as the Chief Operating Officer. Along with these changes, the company is aiming to adopt the Accelerate strategy in the next 12 months to have a better international penetration with a special focus on the US. The global rebranding as ‘OFX’ is also on the cards in order to benefit from market leverage perspective.

Rising transactions and partnerships: OFX transactions reached over 193,000, during the first quarter of 2016 which is an increase of 22% on year over year basis while the active clients reached 148,000 by the end of the period. July month gross revenues exceeding $10 million beating historical records. Moreover, OzForex Group expects to double its revenue in three years via its Accelerate Strategy. Subsequently, the firm forecasts >$200 million of revenue by 2019, driven by global payments markets. OFX is also enhancing partnerships and recently entered into a strategic partnership with Xero to enable smooth international payments for Xero customers. Xero’s Australian customers can use the OzForex platform to perform international payments while the API connection rollout would happen soon at other countries for Xero clients. To achieve its revenue target, OFX is pursuing solid efforts to improve its global penetration and is offering customers cheaper means to make international payment transactions outside the corresponding bank network. The group has already built a track record of offering competitive prices to customers who wants to send and get foreign currency for transactions above $1,000, which contributed 88% of the group’s transactions. But the group is now focusing on transactions which are in $250 to $1000 range, which accounts only 10% of the group’s transactions.


Fee and Commission Income (Source: Company Reports)

Stock Performance: The shares of OFX generated a negative year to date returns of 10.1% as investors were concerned on the group’s growth potential. On the other hand, the group has addressed these concerns through its Xero deal and accelerated strategy. Accordingly, the stock surged over 15.7% in last three months (as of Sep 25). OFX also has a decent dividend yield of 2.7%. We recommend investors to stay invested or “BUY” OFX at current price of $2.57.


OFX Daily Report (Source: Thomson Reuters)


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