Flight Centre: Flying high

This Australian-based travel agent continues to sweep all before it and the most recent results are no exception

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published February 23, 2012 11:53 am AEDT

Flight Centre Limited (ASX: FLT) released their 2012 first half results on 21^st February 2012, and posted strong gains in just about every metric including Total Transaction Value (TTV), EBIT, Net Profit, Earnings per Share and Dividends.

	1^st Half 2012	1^st Half 2011	% Change
Total Transaction Value	$6,181m	$5,668m	9%
Revenue	$954.1m	$916.6m	4.1%
EBIT	$112.7m	$97.5m	15.6%
Net profit after tax	$81.6m	$70.5m	15.7%
Earnings per share	81.6 cents	70.6 cents	15.6%
Interim dividend	41 cents	36 cents	13.9%

It appears that Australians continue to book record amounts of travel online. Following Webjet Limited's (ASX: WEB) report of a 16% increase in domestic TTV and a 41% increase in International TTV, Flight Centre reported a 26% increase in online TTV in Australia.

Regional performance

The company reported an EBIT profit in 9 of its 10 regions, with only the USA underperforming. Flight Centre reported ongoing improvement in the US with EBIT losses falling by 52% to $3.3m. Corporate travel in the US is growing strongly and the company is now ranked in the top 8 US corporate travel providers. The US should report a better second half of 2012, as the first half is seasonally weaker, and is gradually improving. We should see the company making a profit from its US operations in the next year or two.

In Australia, corporate travel is still growing strongly, while their UK business is on track to achieve GBP1billion in TTV by 2014. Other markets had mixed results with South Africa, Dubai and Canada reporting good corporate travel growth, while India and New Zealand disappointed. Singapore is showing promising signs and mainland China is improving.

The company expects Australia, the UK and USA to report their best ever full year results at the end of this financial year.

Show me the cash

Flight Centre currently has $317m in cash, plus $430m of their clients' cash on its balance sheet as at 31December 2011, which contributed over $23m in interest in six months. Similar to the way in which insurance companies invest policy holders' premiums (or 'float' as it's known), Flight Centre appears to be making a decent income from its own 'float'.

The company recorded a $20m operating cash outflow compared to a $115m outflow during the previous corresponding period. Flight Centre typically sees a cash outflow during the first half of the financial year, followed by a cash inflow in the second half, so the outflow is nothing to be alarmed about.

The Foolish bottom line

Flight Centre's profit before tax for the first seven months increased 20-22% compared to the previous corresponding period and well above its target of 8-12%.

The company is now targeting 10-18% full year growth, and profit before tax of between $270m and $290m.

At the current price of $21.67, that equates to a forecast PE for 2012 of around 13.3, which appears slightly undemanding. The PEG ratio (or the price/earnings ratio divided by the growth rate) is less than 1, which many consider a buy signal for growth companies. Forecast dividend yield is around 4%, fully franked.

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Motley Fool contributor Mike King owns shares in Flight Centre. The Motley Fool's purpose is to educate, amuse and enrich investors. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Click here to be enlightened by The Motley Fool's disclosure policy

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