The Flight Centre Travel Group Ltd (ASX: FLT) share price lifted 7% to $47.80 after the company released its annual results this morning. Here's what you need to know:
- Total transaction volume (TTV) grew 4% to $20.1 billion
- Revenue rose 1% to $2,677 million
- Net profit after tax fell 6% to $230 million
- Earnings of 228 cents per share (down from 242 cents in 2016)
- Dividends of 139 cents per share (down from 155 cents)
- $474 million in net cash ($55 million in debt)
- Outlook for 'top and bottom line growth' (revenue and profit growth) with formal guidance to come at the AGM
So what?
A better than expected year for Flight Centre, which saw a remarkable turnaround in its profitability in the second half, especially after revising its guidance downwards earlier this year. Still, profits overall were down and revenues were mediocre owing primarily to the weak first half. Flight Centre continues to make progress in its core business however, making several new acquisitions and investments in productivity and technology inside the company.
The company is becoming increasingly global, although the main driver is still definitely Australia:
You can see that some of the businesses in the Eurozone, China, and South-East Asia are still unprofitable. Management has set a goal that all the company's businesses will be profitable in 3 years, or will be pivoted, divested, or closed.
In addition to the core leisure segment and the smaller corporate segment, Flight Centre has established a new pillar of its business – the Travel Experiences Network (TEN). This is a combination of hotels, tour operators, and destination management companies that Flight Centre has been steadily acquiring.
Now what?
In 2018, Flight Centre is targeting revenue and profit growth, although formal forecasts won't be made until the annual general meeting later this year. It's the long-term forecasts which are more interesting. Management has established long-term goals of growing total transaction volume (TTV) at 7% per annum on average over the next 3 years, removing all loss-making businesses, as well as returning to a 2% net profit before tax margin on TTV (1.64% in 2017).
The 2% margin would have seen the company report $402 million in profit before tax this year, compared with its actual figure of $330 million. If achieved it could see Flight Centre become some ~20% more profitable. I think it will prove a difficult target to hit, especially since the company has been investing in lower-margin services like its foreign exchange and automated transactions, but Flight Centre management has an excellent track record.
I'm not a buyer of Flight Centre today, simply because I think its share price leaves minimal room for error. I consider it a hold.
