Flight Centre shares (ASX: FLT) saw a gain of 2.5% today, bringing the session to a close at A$12.69, as the rebound off A$12 support continues. The share price is reacting positively to an upgrade by RBC Capital Markets, following a down day on earnings. The firm revised its rating from Sector Perform to Outperform, suggesting potential for multiple expansion within the company’s Leisure business segment.
The upgrade spurred moderate buying activity in early trading. Flight Centre’s shares initially rose, trading around A$13.07, before settling in to the close. RBC Capital’s analysis hinges on a comparison between Flight Centre’s Corporate and Leisure divisions. The firm believes the market is undervaluing the Leisure business, particularly given what it views as structural improvements implemented post-COVID. The new price target is A$16, up from A$15.
Flight Centre has been active in recent years, pursuing strategic acquisitions to bolster its market position. In January 2023, the company acquired luxury travel brand Scott Dunn for A$211 million, a move aimed at strengthening its presence in the high-margin UK and US luxury travel sectors. More recently, in October 2024, Flight Centre acquired Cruise Club UK to expand its cruise offerings, mirroring the success of its MyCruises business in Australia.
However, the company has also faced challenges. In April, Flight Centre downgraded its FY2025 underlying profit before tax guidance from A$365–405 million to A$300–335 million. This revision was attributed to reduced travel to the US, stemming from increased immigration checks and border security measures.
Despite the guidance downgrade, there have been positive signals as well. Flight Centre has implemented a share buy-back program as part of its capital management strategy, which can enhance shareholder value.
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Bull Case:
- Leisure business undervalued, potential for multiple expansion.
- Strategic acquisitions enhance market position and revenue streams.
- Insider buying signals confidence in company prospects.
Bear Case:
- Downgraded FY25 profit guidance due to reduced US travel.
- Economic uncertainties could impact travel demand.
- Integration risks associated with acquired businesses.
The outlook for Flight Centre remains mixed. The RBC Capital upgrade provides a positive signal, suggesting the potential for re-rating as the Leisure business demonstrates its improved performance. However, the company must navigate ongoing challenges, including fluctuating travel patterns and economic uncertainties.
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