Is there any bullish case emerging for Flight Centre?

A thriving global travel group, Flight Centre Travel Group Limited (ASX: FLT) is setting a bullish trend on stock exchange in Australia. With over 10% growth in the last six months, the stock price has posted a year-to-date return of 18.38% to $48.380 as at 9 September 2019.

On Monday, FLT stock price surged up 0.939% to close at $48.380 on 9 September 2019. The stock last traded at a price to earnings multiple of 18.320x with a market capitalisation of $4.85 billion.

Fundamentals of Flight Centre

The technical seem to continue the positive market sentiment based on the roots of solid fundamentals of the company.

Flight Centre has achieved another year of record sales, with a profit of $264.2 million, which is within the company’s targeted range for FY2019. Globally, total transaction value (TTV) of Flight Centre exceeded the group’s record FY18 result by almost $billion to $23.7 billion in FY19 on the back of strong results in key overseas markets and continued out-performance in the corporate travel sector worldwide.

TTV from FLT’s company-owned corporate travel brands increased 15.2% globally to a record $9 billion, with the US corporate business growing almost 30%. This strong growth in the USA reportedly helped the broader North American corporate business overtake its Australia-New Zealand counterpart to become FLT’s top corporate business group worldwide in TTV terms. Flight Centre further informed that growth was supported by strong customer retention globally, as well as record business wins, with FCM alone securing over $1.3 billion worth new accounts during the year.

Also, FLT’s 8.8% year-on-year TTV growth was achieved with fewer sales staff, reportedly pointing to further productivity gains, with sales staff numbers contracting slightly from 14,622 at 30 June 2018 to 14,346 at 30 June 2019.

The company further continued success in slowing cost growth, with underlying expenses (excluding touring cost of sales) increasing 3% in constant currency and additional plans in place to achieve further efficiency gains.

FLT’s statutory (actual) PBT for FY19 was slightly higher than the underlying result at $343.5million (FY18: $364.3million) and has not been adjusted to exclude the impacts of various non-recurring losses and gains. Adjustments to statutory PBT during FY19 included a $29.8 impairment loss relating to the Olympus destination management company (DMC) in Mexico; which was offset by four non-recurring gains totalling $30.1million.

The Board declared a record dividend of total $3.07 per share, fully franked, for the year ended 30 June 2019. It included a $0.98 final dividend, a $1.49 per share special dividend and a $0.60 per share interim dividend.

During the Fiscal Year 2019, the company recorded a normal pattern in its operating cashflow with a total inflow of $278.9 million largely during the second half of the year. As at 30 June 2019, cash reserves of the company stood at $1.17 billion

Due to heavy capital returns in the forms of increased dividend payments, meant that FLT returned $310.2million in fully franked dividends to its shareholders, the company finished the year with a reduced global cash and investment portfolio of $1.29billion, compared to $1.48billion one year earlier. However, significant investments in technology and systems has so far been the backbone to the company and the continued investment is expected to strengthen the system further, improve productivity and efficiency and enhance the customer experience.

Company overview, vision and mission

Overview:

Flight Centre is an ASX-listed travel group that is listed under Consumer Discretionary sector on stock exchange. Globally established as one of the world’s largest travel agency groups, FLT owns operations in over 23 countries through its three core segments that include Leisure Travel, Corporate Travel and Destination Travel.

Vision:

Flight Centre aims to become the world’s most profitable travel retailer, delivering staggering experiences to its partners, customers and people.

Mission:

FLT is working towards a 2025 vision that will see it become a thriving global travel business with a distinctive entrepreneurial culture, famous brands and winning models across its three core pillars of leisure, corporate and at destination travel. The company’s dominant mass market offerings are in Australia, New Zealand and South Africa, while it while tends to focus on more specialised and premium offerings in the Northern Hemisphere.

Within its leisure businesses globally, FLT remains focused on:

Long-term Success in Mass Market- To achieve a long-term success, the company employs two paths approach that would allow the Southern and Northern Hemisphere leisure businesses pursue different growth strategies.

Digitisation- The continued advancement of new self-service capabilities on the company’s websites and native apps across multiple product categories. FLT informed that the Umapped acquisition in September 2018 has also digitised key parts of the consultant customer interaction, with its Trips product now available to some 6000 consultants and their customers and providing access throughout the travel journey to group’s full product range.

Product and pricing- As per the company’s information, work is underway on rejuvenating product design and ensuring pricing across our different channels for our travel or service products ANNUAL REPORT 2019 FLIGHT CENTRE TRAVEL GROUP 9 is transparent and value-based. New products include Flight Centre Exclusives, while FLT’s flash-sale range of products are now available throughout its retail network in Australia.

Further, in corporate travel, FLT’s strategic evolution is relatively advanced, with the company continuing to focus on dominating the SME sector through the Corporate Traveller brand and developing FCM as a truly global brand in the managed travel sector (TMS).

Business Transformation Program

While the company is working towards its 2025 vision within its three pillars and has adopted tailored programs in each area, it also remains focused on the broader business transformation program targets that are in place through to the end of FY22, specifically:

• 7% compounding annual TTV growth
• A 10% underlying cost margin (excluding touring cost of sales);
• A return to a 2% net profit margin (underlying PBT as a percentage of TTV)

FLT stated that the program focus has been on shifting the loss-making businesses during year-one (FY18) to an investment phase during years two and three (FY19 and FY20).

Business Outlook

The company remains focused on its FY22 transformation program targets and are making reasonable progress towards the TTV and cost margin goals. Flight Centre believes that its ability to achieve the 2% net margin target will largely be determined by its ability to stabilise and then improve Australian leisure results.

Also Read: A Quick look at the FY19 Results of 3 Travel Stocks QAN, FLT, WEB

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