Flight Centre Travel Group Ltd (ASX: FLT) updated its profit guidance earlier this week, with the probably unsurprising news that earnings would be lower than previously expected due to the conflict in the Middle East.
Image source: Getty Images
Weak fourth quarter takes the shine off
The travel company said that underlying profit before tax (UPBT) was now expected to be in the range of $275 to $295 million, down from previous guidance of $310 to $345 million.
The company said the underlying business was performing well, as evidenced by 10% underlying earnings growth across the first three quarters of the year, before the Middle East conflict broke out.
And given that a peace agreement appears to have been brokered this week, Flight Centre was predicting a "significant earnings tailwind" which would bolster FY27 results.
To take the sting out of the profit downgrade, the company also announced a $200 million share buyback, "reflecting strong belief in FLT's recovery and outlook''.
Flight Centre Managing Director Graham Turner said regarding the update:
The change in our short-term expectations reflects a temporary, conflict-driven headwind layered over what was shaping as a very solid year. It has been driven by an external shock – the Middle East conflict disrupting peak leisure travel – not by a deterioration in our underlying business. Group-wide, the company delivered almost 10% UPBT growth across the first three quarters of FY26, accelerating to ~20% growth during Q3. Even after absorbing Q4 disruption, the group still expects an underlying profit broadly in line with FY25. Looking ahead, we have strong foundations and growth prospects in both the leisure and corporate sectors. This is reflected in the Board's decision to launch a new up-to-$200m buy-back – which clearly signals that we see our shares as undervalued at current levels.
Flight Centre shares a good buy
The analysts at Macquarie said in a note to clients this week that the earnings downgrade was expected while the quantum was previously unclear.
They said the Australian Government's recent downgrading of travel warnings for the Middle East was a positive, as was Flight Centre's good momentum in corporate travel.
Macquarie has a price target of $14.45 on Flight Centre shares compared to $12.44 currently.
The analyst team at Morgans said they believed the first half of FY27 would still be challenging for Flight Centre, but they are predicting a strong recovery later in the year.
They added:
If it wasn't for this conflict, FLT would have had a great year given its results for the first nine months were strong. We are buyers of FLT because when operating conditions ultimately improve, both its earnings and share price will be materially higher.
Morgans has a price target of $14.80 on Flight Centre shares.
