Australia | Aug 29 2012
– Flight Centre delivers solid result
– Further growth expected in coming years
– Earnings guidance for FY13 regarded as conservative
– RBS downgrades, majority of brokers continue to see value
By Chris Shaw
Full year earnings for travel agent Flight Centre ((FLT)) came in at $290.4 million on a profit before tax basis, which represented growth of 18.4% relative to FY11 earnings. As management had recently upgraded guidance the result contained no major surprises.
Driving earnings according to Macquarie was continued growth in the sales network, as sales staff and store numbers recorded growth of 6% and 5% respectively. A slight change in the business mix and some efficiency improvements meant margins increased in FY12.
Management has guided to a profit before tax for FY13 of $305-$315 million, this based on expectations the global sales force will increase by 6-8% in the period. RBS Australia suggests this guidance is conservative, particularly given management at Flight Centre has a history of upgrading guidance over the course of the year.
Others agree, as JP Morgan is forecasting 9% growth for FY13 and Deutsche Bank is forecasting profit before tax for FY13 of $317 million. Growth is expected to continue beyond the current year as consensus earnings per share (EPS) forecasts for Flight Centre according to the FNArena database stand at 215.6c for FY13, rising to 231.7c for FY14.
Changes to forecasts post the result have been modest, while price targets in general have been lifted to reflect the changes to earnings forecasts and higher market multiples. The consensus price target according to the database has risen to $25.82, up from $24.46 prior to the result. Targets range from UBS at $23.30 to Deutsche Bank at $27.00.
Looking forward, Buy ratings for Flight Centre continue to dominate, the FNArena database showing five Buy ratings against three Holds. This is down from a 6:2 split as RBS downgraded post the result. The downgrade was a valuation call and reflects recent share price appreciation.
UBS agrees with RBS and rates Flight Centre as a Hold on valuation grounds, while Macquarie's Neutral rating reflects the cyclical nature of earnings in Flight Centre's business.
The other brokers in the database are more positive, Deutsche Bank suggests Flight Centre's history of delivering earnings growth in challenging markets and a balance sheet in a net cash position offsets global macroeconomic uncertainty and the discretionary nature of corporate and leisure travel.
Also supportive in BA-ML's view is that Flight Centre intends to continue its aggressive store rollout program, which the broker sees as supportive for growth expectations. As well, BA-ML sees scope for small acquisitions to add to earnings growth.
Citi shares this view, adding while acquisitions are likely given excess cash being generated this money could also be returned to shareholders assuming suitable acquisitions cannot be completed.
At the same time BA-ML sees the current valuation of Flight Centre as undemanding, given the broker's numbers imply a FY14 earnings multiple of just 10 times.
Shares in Flight Centre today are higher in a weaker overall market and as at 1.35pm the stock was 50c higher at $24.20. This compares to a range over the past year of $16.01 to $24.54 and implies upside of around 6% relative to the consensus price target in the FNArena database.
Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.
