Shares in Flight Centre Travel Group Ltd (ASX: FLT) were flat after the company released its full-year results to the market this morning. After several updates from management in recent months, the market was well informed and so there were few surprises. Yet, Flight Centre still looks attractive today.
Here are the highlights:
- Total Transaction Volume (TTV)* rose 9.7% to $19.3 billion
- Revenues rose 11% to $2.7 billion
- Net Profit After Tax (NPAT) fell 4.7% to $244 million
- Dividends maintained at 152 cents per share
- Minimal debt of $76 million, company cash of $500 million
- A number of acquisitions made during the year, combined with business refinements expected to drive growth over the medium term
- Outlook for soft trading conditions continuing and uncertainty makes it difficult to provide guidance
- Update on guidance expected at Annual General Meeting on November 9
*TTV is the total amount consumers spent on booking travel products through Flight Centre, revenue is the company's actual income
Travel headwinds
Cheaper airfares copped most of the blame for the decline in profits this year with lower average ticket prices reducing Flight Centre's ability to hit its dollar-value sales targets. Upgrades to its store network and IT systems, losses in early-stage start-up businesses, and underperformance in India, the UAE, and Asia also contributed to the decline in profits. There was also a $3 million foreign currency hit as a result of the weaker Pound Sterling following the 'Brexit' vote, and market conditions have also reportedly deteriorated in the UK as a result.
Building for growth
Flight Centre made a number of acquisitions during the year and is expanding geographically, as well as into a variety of specialty sectors such as youth travel, corporate travel, events-based packages, and online. The online expansion may raise a few eyebrows among long-term shareholders, who know that the company has traditionally been averse to online bookings and built its success around its bricks-and-mortar stores.
The CEO of the recently acquired StudentUniverse business has been appointed as Flight Centre's Chief Digital Officer (CDO) in order to focus on Flight Centre's digital strategy. In the process of launching transactional websites in a number of its foreign markets, Flight Centre expects online Total Transaction Volume to top $1 billion.
It's an interesting approach, given the dominance of the likes of Expedia in the online booking space. With the advent of online travel agents however, it appears as though the transactional websites will be used to complement the company's physical stores rather than compete directly.
Flight Centre is also looking to use its market power in Asia and the USA (where it is responsible for significant hotel demand) to pursue partnership or management opportunities.
Is it a buy?
At today's prices I think so, and it was good to note a wide variety of initiatives and new products being developed by management. Probably not all of them will be successful but a wider product range and better service will appeal to more customers and should lead to continued Total Transaction Value growth. A broader store network and entry into new markets will throw up some additional opportunities of their own in coming years.
With a very strong balance sheet, an undemanding price, and a 4.7% dividend yield, Flight Centre looks like an attractive buy today.
