The Flight Centre Travel Group Ltd (ASX: FLT) share price looks set to visit the moon after rocketing 10% higher today following the release of its results.
Flight Centre is one of the world’s largest travel agencies and has company-owned operations in more than 23 countries, while their corporate travel management network spans more than 90 countries. The Group employs more than 19,000 people and owns 2,800 businesses.
The Flight Centre Report
Australia’s leading travel agent business released its 2019 financial year (FY19) results and the market loved it, sending the company’s share price up 8% shortly after the ASX’s open.
Flight Centre’s Total Transaction Volume or TTV, which represents how much travel is booked through Flight Centre’s network, rose 8.8% to $23.7 billion, heaving up revenue 4.5% to around $3 billion. The two different growth rates, ~9% versus 4.5%, hints to investors that the company is facing pressure on the margins it earns from bookings. Profit for the period was down 0.2% or flat year-over-year.
This Rask Finance video explains dividends:
Flight Centre’s underlying profit before tax, which we consider to be a reasonable measure of performance since it excludes once-off costs, was down 11% (more on this below).
Big Dividends
Pleasingly for shareholders, a generous final dividend of 98 cents per share was declared and while it was down from the $1.07 paid this time last year we have to keep in mind that Flight Centre also paid a special dividend of $1.49 per share earlier in the year. This takes total FY19 dividends to $3.07 (fully franked), representing a trailing yield of 6% at the time of writing.
Pleasingly, the company noted that half (52%) of its TTV and profit before tax is now generated overseas and it made $100 million profit in the Americas division. Flight Centre’s corporate travel business also claimed to be gaining share, reporting 15% growth in TTV. We like this because the corporate side earns a more ‘sticky’ or recurring type of revenue than the retail/leisure side of the business.
Soft Leisure Results
Evidently, Flight Centre pinned the company’s softer overall results on cyclical and internal factors within its Australian leisure/retail business. The internal factors included a new IT system, staffing and reduced margins. It’s the latter factor which concerns us the most, however, we place lots of stock in founder Graham ‘Skroo’ Turner’ and his team’s ability to chalk up more growth. After all, under his watch Flight Centre has achieved 23 years of growth (out of a possible 24) as an ASX-listed company.
Turner said he was disappointed with the underlying results but noted:
“In any given year, TTV growth is crucial and it’s pleasing to report another milestone result almost $2billion higher than our previous record, particularly in light of the challenging conditions in key markets like the UK, where Brexit is causing uncertainty, and Australia, where consumer confidence and leisure market growth appear to be reasonably subdued.”
What Now?
This summary is an extract of our coverage for Rask Invest, our members-only investing research website. We share all of our analysis there.
Nevertheless, in brief, given that we expected Flight Centre’s soft leisure results, we were pleased with just about everything we saw in the report and the accompanying outlook commentary.
Now we need to carefully consider how the latest round of results will feed into our valuation modelling. We’ll be working on that in the coming weeks. So until then, we’re happy to keep Flight Centre on our watchlist.
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Disclosure: At the time of writing, Owen does not have a financial interest in any of the companies mentioned.
