Flight Centre Travel Group Ltd (ASX: FLT) shares could be great value right now.
That's the view of analysts at Morgans, which have just upgraded the travel agent giant's shares following the release of its quarterly update.
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Flight Centre share price tipped to soar
According to the note, the broker has upgraded Flight Centre's shares to an add rating with a significantly improved price target of $26.25.
Based on the current Flight Centre share price of $21.05, this implies potential upside of 25% for investors over the next 12 months.
In addition, the broker is expecting the company to be in a position to resume paying dividends in FY 2024. It has pencilled in a 50 cents per share dividend that year, followed by an 88 cents per share dividend in FY 2025.
This will mean dividend yields of 2.4% and 4.2%, respectively, for investors in those financial years.
Why is Morgans bullish?
There were a couple of reason why Morgans has upgraded its rating and valuation of the Flight Centre share price.
One was the strong trading update it released which has led to the broker lifting its earnings estimates through to FY 2025. The other is a change in its valuation model to a sum of the parts (SOTP) methodology, which it feels is now a more appropriate way to value its shares. Morgans explained:
Given FLT's stronger FY23 EBITDA guidance and it bringing forward its FY25 margin target, we have upgraded our EBITDA forecasts by 2.8%/4.3%14.2% in FY23/24/25. Our new FY25 EBITDA forecast of A$295.5m is slightly ahead of the top end of FLT's guidance range as we think it will prove to be conservative and wouldn't be surprised if it was upgraded following its key trading period.
Given the company's operating and financial leverage, the upgrades at the NPAT level are greater. Our forecasts are now well ahead of consensus estimates. To better account for FLT's different business units and compare it to peers, we now value the company using a SOTP methodology. Our SOTP is A$26.26 per share.
