ASX:FLT
Flight Centre Travel Group Ltd
Investment Summary
The fund managers believe that Flight Centre Travel Group Ltd is currently an attractive investment opportunity, despite some recent share price volatility driven by weaker trading updates. They note that the company has become more efficient and productive than pre-COVID, with over 60% of its retail network closed and a shift towards higher Return on Invested Capital (ROIC) segments like luxury travel and corporate services. The firm's corporate travel division is now the third largest globally, indicating significant growth potential. Furthermore, the company aims to achieve a 2% underlying profit before tax (PBT) margin which could lead to over a 50% increase in PBT from 2024 levels. Although concerns about future earnings persist among some fund managers, particularly with a noted second-half skew risk, several still perceive value given its favorable trading multiples and strong balance sheet.
Commentary From The Managers
Ten Cap
31 Jan 2025
$17.87
- Ten Cap reduced their position in Flight Centre (FLT) due to declining confidence in its future earnings.
- The larger-than-usual second-half skew adds further risk to the investment.
- While a depressed multiple offers some degree of downside protection, greater confidence exists in other opportunities.
L1 Capital
31 Dec 2024
$16.68
- Flight Centre shares fell -25% following a softer Q1 trading update.
- Market impacts attributed to airfare price deflation and downtrading in some corporate accounts.
- Despite near-term volatility, L1 Capital believes the business is now more efficient and productive than pre-COVID levels.
- On the Leisure side, more than half of the legacy retail store network has been closed and the remaining footprint optimised.
- The company has shifted focus towards luxury travel and independent store networks.
- In corporate travel, Flight Centre is the third largest corporate travel manager globally.
- The company aims for a 2% underlying profit before tax (PBT) margin in the medium term.
- If the margin target is achieved, it could imply a 50% increase in PBT from 2024 levels.
- Currently trading at only ~13x FY25 consensus earnings with a strong balance sheet.
- L1 Capital remains optimistic and has used the recent sell-off to add to their position.
L1 Capital
31 Oct 2024
$15.98
- Flight Centre shares have fallen by 29% following a softer Q1 trading update.
- Impacts noted from airfare price deflation and downtrading in some corporate accounts.
- Despite near-term volatility, L1 Capital believes the business is more efficient and productive compared to its pre-COVID status.
- Over half of the legacy retail store network has been closed and the remaining stores have been optimized.
- The company is shifting towards more luxury travel and independent store networks.
- The corporate division continues to grow and is now the third largest corporate travel manager globally.
- L1 Capital anticipates a 2% underlying profit before tax (PBT) margin in the medium term, implying a potential over 50% increase in PBT from 2024 levels.
- Trading at approximately 13x FY25 consensus earnings and with a strong balance sheet, L1 Capital sees Flight Centre as an attractive opportunity.
- Following the recent sell-off, L1 Capital has added to its position.
Blackwattle Investment Partners
31 Oct 2024
$15.98
- Flight Centre (FLT) experienced a decline in performance due to a Q1 trading update that was weaker than consensus expectations.
- Underpinning quality improvements have been noted in the business since 2020, especially with the growth of the FCM corporate travel division.
- Total corporate transaction value has surged over 30% to $12bn since 2019, reflecting organic market share gains despite a market still down 10-15% from pre-pandemic levels.
- A leaner cost structure and new corporate mandates are expected to enhance profitability over time.
- While leisure travel has peaked, increasing airline capacity and reduced demand may lead to elevated commissions for distributors like Flight Centre.
- Under the leadership of founder Graham “Scroo” Turner, Flight Centre has demonstrated a consistent history of innovation and resilience.
- The travel industry has seen significant disruptions, impacting traditional travel agencies significantly.
- Blackwattle Investment Partners continues to hold this position due to the observed improvements and potential for future growth.
Milford Asset Management
31 July 2024
$22.21
- Milford Asset Management has made a recent addition to the Fund with a focus on travel company Flight Centre, which has rallied 10.1%.
- Flight Centre is now a larger, leaner, and higher Return on Invested Capital (ROIC) business compared to pre-Covid levels.
- Approximately 60% of bricks and mortar retail sites have been closed, but this has been offset by expansion into higher ROIC segments.
- This expansion includes luxury, cruise, corporate, and independent agencies.
- Flight Centre has emerged as a top three provider of corporate travel services in the US.
- The leisure segment of Flight Centre targets demographics that are less impacted by mortgage stress, particularly luxury and baby boomer segments.
Blackwattle Investment Partners
31 May 2024
$18.85
- Shares in Flight Centre were down 11% in May.
- Recent share price weakness in travel stocks linked to outlook from Corporate Travel (CTD).
- CTD's issues appear somewhat self-inflicted.
- Flight Centre on track to deliver 2% PBT target in FY25.
- Consensus estimates still below this target.
- Potential for upgrades as aspirational target shifts to 12-month guidance at FY24 result.
Please note: The completeness, accuracy or current status of the investments referenced are not guaranteed.