2014 has been a frustrating year for Flight Centre Travel Group Ltd (ASX: FLT) shareholders. The company's share price rose strongly at the start of the year from around $46 to over $55 but has since drifted back to below $36 following a fall in consumer confidence and continued weakness in the domestic travel industry. So could now be the time to buy?
Lookin' Cheap
Flight Centre is trading on a trailing price to earnings ratio (PE) of 17, and forward PE of just 13 for the 2015 financial year, and 12 for the 2016 financial year. Flight Centre's management team reiterated in October a forecast for 5-8% growth in underlying earnings in the 2015 financial year, however this will be skewed towards the second half, which has convinced some analysts and investors that the best growth years may be over.
Amazing Growth
Flight Centre has an incredible record! The company has been able to grow revenue in all but one year of the last 10, and has maintained profitability throughout the GFC and the various events that have depressed the international travel market.
The last five years have seen a 50% increase in profit and a massive five-fold increase in the dividend payout to investors. The group's return on equity has averaged over 25% and EBIT margins have increased nearly four percentage points to 13%.
Global Diversification
Flight Centre has operations in Australia, New Zealand, USA, Canada, the UK, South Africa, India, Singapore, China, Hong Kong and the UAE through its 32 brands that cater for the leisure, corporate, and wholesale markets, as well as a range of brands that handle international money transfers, among other travel-related services.
Around 40% of group revenue is sourced from overseas, however it accounts for only 20% of earnings. This can be attributed to spending on growth initiatives and lower margins in some regions where Flight Centre is not the dominant brand. Australian growth is slow, and is a concern for shareholders in 2015. If the company is to achieve its profit growth aim it will need the local economy to pick up significantly or its overseas brands to pick up some slack.
