Travel agent Flight Centre Travel Group Ltd (ASX: FLT) has experienced a rough start to Financial Year 2017, with a downgrade in November and a declaration of weaker Total Transaction Value (TTV is a measure of goods and services that Flight Centre sells) overall. Shares are down 21% in the past 12 months and, disturbingly, the slower TTV growth comes despite a number of acquisitions made in that time.
Short sellers are still betting heavily against the business, with 8% of the company short-sold, although this is down from 12% at the end of July. Despite the market's dislike for the company at present, I believe there are several reasons Flight Centre remains attractive for the long term:
- Capable, founder-led management team
- Decision to maintain or even increase investment in future prospects (online booking, currency conversion apps, etc) despite recent weak results
- Rapid organic growth in the corporate market (~40% of Flight Centre's total sales) as well as planned expansions into Japan, France, Brazil, South Korea, Italy, and Spain for corporate markets
- Moving towards vertically integrating its businesses (e.g., controlling the tour company in addition to the people that sell the tickets for the tours)
- Strong balance sheet with good cash balance and minimal debt
One accusation that could be levelled at the company is that it is 'buying growth', which refers to the practice of making acquisitions specifically to boost earnings in order to hit near term targets (often feathering executive pay packets in the process).
While Flight Centre has been acquiring rapidly in recent times, I don't believe it is buying growth in the short-sighted and self-interested way described above. Management has always taken a long-term view of the company's prospects and has been steadily acquiring niche businesses for many years, even in times when growth has been stronger.
Although Flight Centre is not exactly a 'hot' share at the moment, it appears attractive and is cheap as a result of the market's distaste for it. Investors with a genuine long-term investing focus could do worse than to jump on board Flight Centre at today's prices.
