Stock: Flight Centre
Stock code: FLT
Share Price: $23.51
Broker Sell Recommendations:
State One Stockbroking (18th April 2011, share price was $22.79 that day)
Shadforth Financial Group (18th April 2011, share price was $22.79 that day)
Alto Capital (24th January 2011, share price was $24.53 that day)
Chart: Share price over the year to 29/04/2011
Link to Recent Company News: Flight Centre
Link to Company Investor Centre: Flight Centre
Share Price Performance
Chart: Share price over the five years to 29/04/2011 versus ASX200 (XJO) and competitor Wotif.com (WTF)
Long-term shareholders have had a turbulent ride with Flight Centre. The share price went from $25 at the beginning of 2004 to just $10 at the start of 2006, only to soar again to over $30 in early 2008. It then crashed to $5 in the beginning of 2009, post-GFC, from which point it proceeded to rocket again to today’s share price of $23.51 – an almost fivefold increase in just two years. Competitor Wotif.com has been positively stable in comparison, and it’s the threat of competition from this very competitor – and a host of other online providers – that poses a great risk to Flight Centre, who have been much slower in jumping on the internet bandwagon.
A quick glance of the Flight Centre daily chart is supportive for short term FLT bulls. Flight Centre is testing the upper Bollinger Band after breaking out of four week congestion area on daily chart. The next minor resistance level for FLT bulls should be prior support area made during January 2011 lows. FLT prices appear headed to prior swing high of 25.12. Bulls need to see prices “walk up” the Bollinger band to confirm the continuation of the uptrend that began in March. Threats to bullish thesis is that the RSI indicator is suggesting the current uptrend is becoming overbought and a closer look at trading activity is revealing that the volume is following prices higher.
While Flight Centre says it achieved solid profits in March, the company told investors that growth would need to continue into the fourth quarter so that it can reach its earnings expectations. Management also stated it would not increase guidance despite the strong start to the year. It said that FLT “will continue to target a full year profit before tax of between $220 million and $240 million, excluding any abnormal items that may arise.” If Flight Centre can maintain this pace, this would represent 10 to 20 percent growth based on the prior year results of $198.5 million for 2009/10, however it remains to be seen if these levels can in fact be achieved.
Flight Centre management also told investors that based on the current economic volatility it wouldn’t be prudent to increase guidance to higher than what was already given. Management said the latest earning report was very strong and the firm would not expect to maintain its current profit growth rate of greater than 30 per cent over the full year.
Key financials for the past three years
| Sales Revenue ($m)
| EBITDA ($m)
| EBIT ($m)
| Reported NPAT ($m)
| Dividend Yield (%)
| Net Profit Margin (%)
| ROE (%)
| ROA ($)
| Net Debt/Equity (%)
Flight Centre shares have rebounded fairly well over the last 12 months as consumers gained confidence that the global financial crisis was over. Recent earnings for FLT have been fairly impressive as management has done a good job guiding the company out of difficult economic conditions. The important thing for FLT investors to remember is that the past is not always indicative of future success. Taking a look at the overall business and industry as a whole, investors may be concerned about what may lie ahead for FLT.
Flight Centre’s travel business is facing ever-increasing competition from internet retailers resulting in the inability to increase its margins. Not only are the days of increasing margins very much in the past, FLT has higher fixed costs than its online competitors.
Even though FLT shareholders have been rewarded in the past 12 months it may be time to consider taking any profits or re-allocating capital to better ideas.
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