FLT share price in focus
Flight Centre is an Australian staple in the travel industry, but you may not know that it operates under multiple names across over 80 countries!
Flight Centre isn’t just limited to booking flights either. They offer services in both the retail and corporate sectors and across sub-sectors including tour operations, travel experiences and hotel management.
Unlike many of the online travel agencies, Flight Centre still has brick-and-mortar locations where customers can come in and have face-to-face consultations. This extra service, as well as the exclusive deals Flight Centre can get access to because of its reach, are what keep customers coming back.
The key metrics
If you’ve ever tried reading a company’s income statement on the annual report, you’ll know just how complex it can get. While there are any number of ways you could slice up the statement, three key figures are revenue, gross margin, and profit.
Revenue is important for obvious reasons – everything else (profit, margins, return on equity etc.) is downstream of a company’s ability to generate sales and revenue. What we’re looking for is not so much the absolute number, but the trend. FLT last reported an annual revenue of $2,708m with a compound annual growth rate (CAGR) over the last 3 years of 89.8% per year.
The next thing we’ll want to consider is the gross margin. The gross margin tells us how profitable the core products/services are – before you take into account all the overhead costs, how much money does the company make from selling $100 worth of goods and services? FLT’s latest reported gross margin was 42.4%.
Finally, we get to profit, the real headline number. Last financial year Flight Centre Travel Group Ltd reported a profit of $140m. That compares to 3 years ago when they made a profit of $433m, representing a CAGR of -31.4%.
Financial health of FLT shares
Next, we could consider the capital health of the company. What we’re trying to work out is whether the company is generating a reasonable return on their equity (the total shareholder value) and whether they have a good safety buffer. One important measure to consider is net debt. This is simply the total debt minus the company’s cash holdings.
In the case of FLT, the current net debt sits at $283m. A high number here means that a company has a lot of debt which potentially means higher interest payments, greater instability, and higher sensitivity to interest rates. A negative value on the other hand indicates the company has more cash than debt, which can be seen as good (a big safety buffer) or bad (inefficient capital allocation).
A metric that might be more valuable to us is the debt/equity percentage. This tells us how much debt the company has relative to shareholder ownership. In other words, how leveraged is the company? Flight Centre Travel Group Ltd has a debt/equity ratio of 84.1%, which means they have more equity than debt.
Finally, we can look at the return on equity (ROE). The ROE tells us how much profit a company is generating as a percentage of its total equity – high numbers indicate the company is allocating capital efficiently and generating value, while a low number suggests that company growth may be starting to slow. FLT generated an ROE of 11.9% in FY24.
What to make of FLT shares?
As a growth company, one way to put a general prediction on the FLT share price could be to compare its price-to-sales multiple over time. Currently, Flight Centre Travel Group Ltd shares have a price-sales ratio of 1.04x, compared to its 5-year average of 3.42x, meaning its shares are trading below their historical average. This could mean that the share price has fallen, or sales have increased, or both. In the case of FLT, revenue has been growing over the last 3 years. Please keep in mind that context is important – and this is just one valuation technique. Investment decisions can’t just be based on one metric.
The Rask websites offer free online investing courses, created by analysts explaining things like Discounted Cash Flow (DCF) and Dividend Discount Models (DDM). They even include free valuation spreadsheets! Both of these models would be a better way to value the FLT share price.
