The Motley Fool

How Flight Centre Travel Group Ltd just posted records sales and dividends

This morning global travel agency Flight Centre Travel Group Ltd (ASX: FLT) posted a record underlying profit before tax of $384.7 million on record total transaction value (TTV) of $21.8 billion for the year ending June 30, 2018.

The underlying profit is an impressive 17% higher than the prior year and 2% above the prior record result delivered in FY 2014. Statutory profit lifted 11.7% to $363.5 million.

Thanks to better cost management the group’s net profit margin (profit before tax as a percentage of TTV) improved to 1.76%. This year’s rising net margin was attributed to cost savings as.a result of closing loss-making businesses and a turnaround in the U.S. leisure business, with the group targeting net margins of 2% by FY 2022.

The group will pay a final dividend of $1.07 per share to take full year dividends to $1.67 per share on record underlying earnings per share up 14% to $2.67.

The group has one of the strongest balance sheets on the local market with just $35.5 million in debt translating into a massive $517.5 million net cash position. This means it has the flexibility to fund further acquisitions or even hike dividends if its long-term focused founder-led management team feels it is appropriate to do so.

It also means the group can ride out the steepest of downturns which gives investors an extra layer of safety as to the group’s durability.

Flight Centre is well known to Australian holiday makers due to its bright red stores emblazoned with smiley pilots, but it’s also an increasingly popular travel brand overseas with 49% of TTV now earned abroad, with the large UK and US markets also being significant earners.

Flight Centre is also a big player in the corporate travel market where rivals like Corporate Travel Management Ltd (ASX: CTD) have made gains recently, with 35% of TTV, or $7.7 billion now coming from Flight Centre’s corporate travel customers.

The group also flagged that it is continuing to invest for the future with small acquisitions, a new point of sale system and via the rebranding of less popular businesses like Escape Travel into the Flight Centre brand.

Importantly, Flight Centre also continues to invest in its online presence in order to answer critics that claim the business is vulnerable to online competition.

Overall, this was another typically solid result from a leisure and corporate business that benefits as the global economy picks up and from the long-term tailwind of generally greater travel spends over time.

Foolish takeaway

The stock is 6.3% lower to $62.88 in morning trade as the group faces some media allegations over poor treatment of staff, but these are likely to be short-term issues that may present an opportunity to take a position in a business that offers a decent mix of balance sheet strength, yield, value and growth.

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Motley Fool contributor Tom Richardson owns shares of Corporate Travel Management Limited.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia owns shares of and has recommended Corporate Travel Management Limited and 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.

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