The Flight Centre Travel Group Ltd (ASX: FLT) share price is still 42% lower than where it was just before the COVID crash.
Does this mean that the business could see a share price rise of almost 75% once its pre-COVID profit returns?
It might not be as simple as that, according to one expert.
It's true that Australia's international borders are expected to start opening up again. Prime Minister Scott Morrison recently announced that the national cabinet had decided that Australia will open borders to all remaining visa holders on 21 February 2022.
One condition is that people must be double vaccinated to come to Australia and they will need to provide proof of vaccination. A proof of medical exemption will be required for those that cannot be vaccinated. Unvaccinated travellers will have to go through hotel quarantine if they are granted permission to enter the country.
So, with domestic borders almost back to normal and international borders about to open up, could the Flight Centre share price see a quick, large recovery?
Don't forget about the capital raising
A key difference for Flight Centre is that there are now far more shares on issue for the business (and other ASX travel shares) than there were before the pandemic. That's because of the capital raising it completed at the start of the pandemic troubles.
According to Marcus Padley from Marcus Today, writing on Livewire, he pointed out that, at the time of the article, Flight Centre shares were down by 53.4%, but the total market capitalisation was only down by 17.2%.
Even if Flight Centre goes back to earning a full-year net profit to a similar level as FY19, that profit is being shared between a much larger number of shares.
In other words, the earnings per share (EPS) will theoretically be materially lower even when the net profit figure fully recovers. EPS can be a key measure to decide the valuation of a business.
But is the Flight Centre share price an opportunity?
Mr Padley had this to say:
This doesn't mean there isn't a handsome trade to be had buying travel stocks for a sentiment improvement on the border opening, but it does tend to suggest that you need to be aware that it is not a "value" trade, it's a "sentiment" trade and is probably a trade, not an investment.
Many of the leading brokers currently rate Flight Centre as a hold or are 'neutral' on the company, such as Macquarie. The broker thinks profit will be hurt again in FY22, but FY23 could be the year when volume finally comes back.
Credit Suisse currently rates the Flight Centre share price as a buy with a price target of $23.30. On this broker's numbers, it's valued at 15x FY23's estimated earnings.
