Should you buy Flight Centre?

Company on track for 8-10% earnings growth

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 October 31, 2013 11:56 am AEDT

Travel group Flight Centre (ASX: FLT) has reported a strong start to the 2014 financial year, and confirmed that it is expecting to grow underlying profit before tax (PBT) by between 8-12% for the full year.

In 2013, Flight Centre grew PBT by 18% to $343 million, its sixteenth year of profit growth in eighteen years as a listed company. The company expects to report profit before tax of between $370 million to $385 million in 2014.

Speaking at Flight Centre's AGM today, managing director Graham Turner said, "Trading results so far are promising and indicate that we will be tracking within our targeted range in PBT terms at the end of this month (October). Total Transaction Value (TTV) growth has also been solid."

Mr Turner added that, as expected, the fluctuations in exchange rates do not seem to have affected Australian outbound travel. He says that both the company's leisure and corporate businesses have improved year-on-year, but leisure was recording stronger growth. In July 2013, Flight Centre opened its 2,500 store, and plans to expand its global sales force by 8-10% over the next year.

Last week the company announced that it was expanding its Escape Travel franchise business in Australia, due to demand from travel agents currently aligned to other networks. That may be bad news for the likes of Jetset Travelworld (ASX: JET), which is partly owned by Qantas Airways (ASX: QAN).

The one fly in the ointment, and possibly the reason that Flight Centre's shares have been sold off today, was the company reiterating that it was likely to writedown the value of its goodwill in India and the USA, and could also writedown some legacy IT systems. At lunchtime, Flight's shares had recovered somewhat to be down 0.4% at $52.03.

Based on earnings estimates for 2014, Flight Centre is currently trading on a prospective P/E ratio of around 19 times, but has been known to under-promise and over-deliver. By comparison, Corporate Travel Management (ASX: CTD) is trading on a forecast P/E ratio of 24 times. Flight is also sitting on a cash pile of $433 million, with debts of just $45 million.

Foolish takeaway

Flight Centre continues to defy its critics, growing despite online-only competitors. At this stage there seems no reason to doubt that the company can continue to grow earnings at around 10% each year, and Foolish investors might want to add this stock to their watchlist.

Automatic Renewal

By taking up this offer, you will also be enrolled in our auto-renewal program, which is our way of making your ongoing subscription easier by ensuring uninterrupted service. Don't worry, though – you're not locked in, and can cancel your auto-renewal at any time before each 'anniversary' date without question or penalty.