Shares in Flight Centre Travel Group Ltd (ASX: FLT) could be in the buy zone for long-term investors. The Flight Centre share price has fallen more than 67% in year-to-date trading but could it be about to take off?
Travel restrictions and lockdowns have wreaked havoc among travel companies on the ASX. Despite the doom and gloom, the turbulent conditions could provide investors with a great opportunity.
A recent article I wrote on Corporate Travel Management Ltd (ASX: CTD) highlighted the recovery in the company’s share price. A similar recovery could be seen in the Flight Centre share price, as investors and consumers look to the future.
How did the pandemic impact Flight Centre during FY20?
Flight Centre recently reported its annual results for FY20.
The report detailed the full impact of the pandemic of the travel agent’s operations. This was reflected in Flight Centre posting its first loss since listing on the ASX.
With the introduction of domestic and international travel restrictions, Flight Centre saw operating conditions deteriorate significantly.
As such, the company saw total transaction volumes and revenue finish 35% and 38% lower respectively for the full year. This resulted in Flight Centre delivering a net loss of $662 million for FY20.
The company also revealed aggressive cost-cutting measures, effectively lowering its cost base by 70%. Flight Centre also reported $1.1 billion in available liquidity, boosted by a $700 million capital raising in April.
Silver lining for long-term investors
Although its leisure segment took a major hit during FY20, Flight Centre’s corporate travel business was a standout performer.
For FY20, Flight Centre’s corporate division was able to deliver a positive operating profit of $74 million. This was largely attributed to the company’s exposure to clients in essential service sectors, such as mining and government.
For long-term investors, the profitability of Flight Centre’s corporate segment is a silver lining.
This is because growth in the segment allows for greater understanding of Flight Centre’s growth profile. With the leisure segment eventually destined to recover post-pandemic, a thriving corporate segment could see a re-rate in the Flight Centre share price in the long term.
Should you invest in today’s Flight Centre share price?
In addition to a promising corporate segment, Flight Centre has reassured investors that the company can break even with total transaction value at 40%. This should give long-term investors some closure as they wait for a COVID-19 vaccine.
Despite the lucrative potential in buying at the current Flight Centre share price, I think investors need to remain cautious. I believe the old adage of ‘never catch a falling knife’ applies to investing in the travel sector in the current environment.
From a risk management perspective, the current Flight Centre share price looks attractive. However, if investors are inclined to invest in Flight Centre at the company’s current share price, I think a prudent strategy would be to establish a stop-loss to ensure they protect to the downside.
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Motley Fool contributor Nikhil Gangaram has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Corporate Travel Management Limited. The Motley Fool Australia 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.
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