Flight Centre Travel Group Ltd (ASX: FLT) is one company that investors should be following because of its focus on international expansion and continued earnings growth.
This is especially true when it doesn't look like the Australian economy is going to improve quickly. Investment bank Goldman Sachs' view now is that the RBA may have to cut interest rates even further to make up for a weak jobs market and high Aussie dollar.
Investors will need a number of stocks in their portfolio that can take advantage of growing overseas business. The US isn't exactly booming and China is still trying to adjust to a slowing economy, yet they are expanding more than our domestic market.
Growing proportion of overseas revenue
Flight Centre, the leading travel agency franchise network in Australia, gets around 40% of its revenue from overseas. EBIT from its international businesses has tripled since 2010, with all countries it operates in turning a profit in FY 2014.
It has been expanding its US, UK and Asian networks through recent acquisitions of travel agencies, corporate travel specialists and even tour operators for new income streams.
Corporate Travel is a money-maker
Its award-winning FCm Travel Solutions corporate travel business now has offices in 17 US cities. In FY 2015, it is expected to exceed $1 billion in total transaction value just in the US. Corporate travel business usually generates higher profit margins for the company than regular holiday travel.
This is one business segment where the company can truly build a strong market presence in a number of countries.
Company outlook
Since early May, the stock is down about 21% and it's yielding 3.8% fully franked.
The company acknowledged that the leisure travel market is weak in Australia. Still, it is expecting a possible 5% – 8% gain in underlying profit before tax for FY 2015. This is roughly in line with analysts' forecasts of about 8% earnings growth annually over the next two years.
Until the Australian economy picks up, Flight Centre's overseas business is going to become an increasingly important part of the company. Right now, investors have an opportunity to pick up shares in a well-run company at an attractive discount as it moves into more locations in Asia, its next target for further growth.
