I am kicking myself for not buying Flight Centre Travel Group Ltd (ASX:FLT) when its shares were under $32 in December last year. I missed an opportunity to pick up a high quality, well-managed company at a significant discount to value. Is it still a buy at the current price?
My mistake in December was that I was trying to buy shares even cheaper than $32. I had watched the price shoot up from around $18 to $28 and I had fallen into one of the classic investor biases. I had become anchored to the price of $28, on which I had based my analysis.
Since December Flight Centre has had a strong run up in price to around $46 but has now settled back to under $45 in a softer market.
Flight Centre operates in both the leisure and corporate travel sectors as well as wholesaling. One of the things I like about the company is the strength of management ownership, especially for a business of this size. Founder and owner Graham Turner owns more than 15 million shares in the company.
Another positive is the fact that Flight Centre has been profitable for four consecutive years in all of its 10 geographic segments. Impressively, seven of those reported record profits in the 2014 financial year.
Finally, Flight Centre is mainly growing its international operations organically.
While there have been some acquisitions, they have been relatively small. The diversification of the business within the sector is impressive — it also has businesses in areas such as foreign currency exchange, travel academies and bike retailing.
At a price of $45, Flight Centre does trade at a fairly high price-to-earnings ratio of 18. I think that is a fair reflection of the potential growth in earnings as the company's operations expand, and the benefit its international segments will gain from a lower Australian dollar.
Flight Centre is carrying almost no debt, and this is certainly something I am attracted to in times of economic uncertainty. Low or no debt is probably the single most important factor to a company surviving a strong downturn like we saw in the GFC.
The operating margin is healthy at nearly 20% and return on invested capital is over 25%, both indicators of a sustainable business. Flight Centre's current fully franked dividend yield is around 3.4%, and its payout ratio has historically been around 60%. Along with organic growth, there is plenty of potential for the yield to grow with the business.
