The Flight Centre Travel Group Ltd (ASX: FLT) share price is up 12% to $56 on a strong set of results this morning. Total Transaction Value (TTV; a measure of travel services sold by $ value) rose 9% to $10.1 billion. Revenue rose 5% to $1,370 million and profit before tax rose 28% to $139 million. Net profit after tax (NPAT) grew 37% to $102 million.
Earnings per share were 101 cents, and Flight Centre announced an interim dividend of 60 cents per share. Flight Centre has debt of $91 million and company cash of $468 million, giving it a net cash position of $377 million.
As we've covered previously at various times during the year, Flight Centre made several acquisitions in the half. These include Bespoke Hospitality Management Asia (hotel management company), Les Voyages Laurier du Vallon (a Quebecois travel agency), Olympus Tours (Tour guide company in Mexico/Dominican Republic/Costa Rica), and several other travel agents in the ANZ region.
These businesses provide entries into new markets and new adjacent businesses where Flight Centre previously did not have a presence. Management has previously flagged hotel management and 'destination management companies' (DMCs; tour operators) as a key focus so acquisitions here are not surprising.
Flight Centre is aiming to capture more of the traveller's wallet over time. Rather than simply selling tickets and booking tours, Flight Centre can also run its own tours. It's an open question whether this is a response to competitive threats (the old debate about whether travel agents will be made obsolete by the internet), but it's unquestionably a smart move. With a network of travel agents, Flight Centre is a major 'gateway' to the travel industry and it makes sense to steer customers into your own products if you can. This is something that companies as diverse as the big banks and the supermarkets are doing very effectively.
Over the next few years, Flight Centre is aiming to grow its TTV at 7% per annum, while simultaneously returning margins to 2% (1.64% in full year 2017). For the full year, Flight Centre upgraded its outlook today, targeting $360 million to $385 million in profit before tax, up from $350 million to $380 million previously. Using a similar tax rate (27%) to this half, that would work out to a full year net profit after tax of ~$263 million, pricing Flight Centre at around 21x its full year earnings.
I own shares in Flight Centre, like it a lot, and think that its strategies will bear fruit over the next few years. However, much of its potential is already baked in to the share price. As a result I would call the company a 'Hold' today.
