Flight Centre Travel Group Ltd: Here’s what I think the shares are worth

Flight Centre Travel Group Ltd (ASX: FLT) provides travel retailing, wholesaling and corporate travel management services.

Shares of Flight Centre current trade at $56.86– an increase of 95% over the previous twelve months. The 52 week high is $59.30, and the 52 week low is $28.52. With earnings per share of $2.32 in 2017, shares are currently trading at a price to earnings ratio of 24.54 based on 2017 earnings. Analysts have forecasted earnings of $2.65 per share in 2018, an increase of 14.5% on the previous 12 months. This puts the current share price at a price to earnings ratio of 21.4 based on forecasted 2018 earnings.

In the last 10 years, Flight Centre has grown its book value at an annualised rate of 9.8%. The current price to book ratio is 4.05. Over the same period, Flight Centre has grown earnings at an annualised rate of 5.2%, and its cash flows have decreased at 3.5%.

Over its last 5 financial reports, Flight Centre’s return on equity has ranged from 9.2% to 12.65%, and has averaged 10.95%. This represents only a moderate return over that period.

In 2017, Flight Centre paid a fully franked dividend of $1.39.

So what are the shares worth?

According to its 2017 financial report, Flight Centre held no interest bearing debt, and $1.28 billion in cash and equivalents. At a current market cap of $5.79 billion, Flight Centre’s enterprise value is around $4.51 billion. With earnings before interest, tax, depreciation and amortisation (EBITDA) of $406.2 million, the company’s enterprise multiple is around 11.1. An enterprise multiple of 10 would be a fair price to pay, and this would necessitate a market capitalisation of $5.34 billion, and a share price of $52.86.

A discounted cash flow model using the historical growth rate in book value as the growth rate for the next 10 years and then a 2% growth rate thereafter, capital expenditures equal to those in 2017, and a required return of 10% per year places the intrinsic value of the shares around $55.70.  This is, of course, heavily dependent upon the growth rate and your required return. A required return of 15% would place the intrinsic value at $39.67.


Based on the above, shares are probably worth somewhere between $40 and $50, less any margin of safety that you desire. However, the calculation of intrinsic value is not an exact science. Given the historical growth in book value and returns on invested capital, I’d be happy to buy the shares at around $50.

3 Revolutionary Tech Companies to Buy In April

We're living in one of the most exciting times in investing history. Innovation and a booming culture of entrepreneurship are constantly creating new companies with the potential to make forward-thinking investors very rich. Now more than ever, one small, smart investment could make a huge difference to your wealth.

That's why at The Motley Fool we've been scrutinizing the ASX to uncover the kinds of companies that we believe could turn into the next Cochlear or REA Group.

We've found three exciting companies that we believe re poised to perform in the new year. Click here to uncover these ideas!

Motley Fool contributor Stewart Vella has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Flight Centre Travel Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

5 ASX Stocks for Building Wealth After 50

I just read that Warren Buffett, the world’s best investor, made over 99% of his massive fortune after his 50th birthday.

It just goes to show you… it’s never too late to start securing your financial future.

And Motley Fool Chief Investment Advisor Scott Phillips just released a brand-new report that reveals five of our favourite ASX stocks for building wealth after 50.

– Each company boasts strong growth prospects over the next 3 to 5 years…

– Most importantly each pays a generous dividend, fully franked.

Simply click here to find out how you can claim your FREE copy of “5 ASX Stocks for Building Wealth After 50.”

See the stocks now