Flight Centre Travel Group Ltd (ASX:FLT) shares smashed on guidance update

It has been a very disappointing start to the week for the Flight Centre Travel Group Ltd (ASX: FLT) share price.

In morning trade the travel agent giant’s shares are down 10% to $46.17 on the day of its annual general meeting.

At one stage they were down as much as 12% to $45.05, putting them within touching distance of a 52-week low.

Why are Flight Centre’s shares being smashed?

Ahead of its annual general meeting in Brisbane today, the company released a trading update and its guidance for FY 2019.

In the first quarter of FY 2019 total transaction value (TTV) was tracking slightly above the company’s long-term target of 7% annual growth in constant currency.

However, despite this solid TTV growth, underlying profit before tax has only increased modestly compared to the previous corresponding period.

Although its international businesses have been performing very well, this has been largely offset by a poor performance from its Australian Leisure segment.

The segment did report a small increase in TTV, but “EBA negotiations and the associated disruption resulting from the ABC story, mean that Australian profit is currently down compared to the same period last year.”

Management believes these issues are now easing and expects a better second half from the segment.

In light of this soft start to FY 2019, the company expects to report an underlying profit before tax of between $140 million and $150 million for the six months to December 31, compared to $139.7 million in the prior corresponding period.

Over the full year management is targeting an underlying profit before tax between $390 million and $420 million. This would be between 1.3% and 9.2% higher than its FY 2018 profit before tax of $384.7 million.

However, management warned: “It is, of course, very difficult to forecast future results in our style of business and our broad guidance range reflects the uncertainty surrounding the timing of the Australian leisure business’s recovery.”

Should you invest?

I think its guidance for FY 2019 is very disappointing and I can’t say I’m surprised to see its shares sink lower today.

At 18x earnings I think its shares are reasonable value if it achieves the high end of its guidance range, but would be overvalued if it only delivered on the low end of its range. Because of this and the uncertainty around the recovery of its Australian Leisure segment, I think it is a risky investment option at this stage.

As a result, I would suggest investors consider Helloworld Travel Ltd (ASX: HLO) or Webjet Limited (ASX: WEB) shares ahead of Flight Centre.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Flight Centre Travel Group Limited. The Motley Fool Australia owns shares of Helloworld Limited. The Motley Fool Australia has recommended Webjet Ltd. 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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