Flight Centre’s share price has been bid down massively following the COVID pandemic. Investors saw the share price plummet a massive 85.92%. Does the current discount present a buying opportunity to investors? Should I buy Flight Centre Shares in 2021?
Flight Centre is a flagship company in the travel sector. In the past months, we have all heard the hypothesis. COVID brought down the entire sector almost overnight, with the return of travel and the return of money to the sector, prices will go sky high, right? Does this stand true for Flight Centre?
About Flight Centre Shares
FLT’s Principal Activity is travel retailing in both the leisure and corporate travel sectors, plus in-destination travel experience businesses including tour operations, hotel management, destination management companies (DMCs), and wholesale. Source: Market Index
Flight Centre is a travel agent founded in 1982 and is headquartered in Brisbane, Australia. They organize flights, holidays, hotels, car hire, cruises, travel insurance, coach tours, visas, frequent flyer points redemption, and more.
Flight Centre operates under multiple names in Australia, New Zealand, United States, Canada, United Kingdom, South Africa, Hong Kong, India, China, Singapore, United Arab Emirates, and Mexico.
FLT ASX Share Price
Just prior to the COVID recession, Flight Centre shares had performed well pushing to an all-time high of 75.13 in August of 2018. Today the Flight Centre share price is $15.24, which is in the middle of its 52-week range of $9.76-20.16. This is still down around 80% since its peak. FLT is up only 6.57% this year.
In comparison, the broader market is up 27.56% this year and has fully recovered from the recession pushing it to new heights.
FLT Shares Dividend History
Flight Centre shares typically announce a dividend with the release of its half-yearly results in February and full-year results in August as seen in their financial calendar. Dividends are typically paid twice a year, in March (interim dividend) and September (final dividend).
FLT has paid biannual dividends every year since 1998. This included during the GFC in 2008. However, no dividend was paid during the COVID recession of 2020 or interim 2021. All dividends paid by FLT shares during this time have been fully-franked.
FLT Shares Investor Sentiment
After surveying 99 Investors about their current Flight Centre shares sentiment: BUY-HOLD-SELL, as well as their target price over the next 12-months here are the results;
The results from this survey show there is currently a strong bullish investor sentiment on FLT shares. So how much are FLT shares worth? Let’s get into it.
Should I Buy Flight Centre Shares: Fundamentals
|Volume 4W Avg||1,789,686|
|NTA per Share||$0.98|
Should I Buy Flight Centre Shares: Financials
Flight Centre group released its half-yearly results in February here’s the highlights:
The Flight Centre Travel Group (FLT) continues to respond to the challenges posed by COVID19 and the unprecedented travel restrictions that are in place to slow its spread.
In releasing its 2021 fiscal year (FY21) first half (1H) accounts, FLT said today that while global trading conditions remained volatile, results had gradually improved thanks to targeted cost base reductions and revenue increases during the period.
Since the crisis escalated in March 2020, the company has now:
- Lowered its cost base by 66% (representing a $1.9billion annualized saving) without jeopardizing either its investment in key growth drivers or its ability to rebound quickly when conditions improve
- Continued to generate total transaction value (TTV) and revenue in a prevaccination, domestic-only travel world – December revenue was at its highest point since travel restrictions were introduced globally in March 2020
- Delivered month-on-month reductions in net operating cash outflow during the 1H;
- Maintained a $1.2billion liquidity runway to help it withstand an extended downturn or capitalize on opportunities during the recovery phase, which could now be fast-tracked with the world’s largest-ever vaccination program underway
In the Income statement, we can see the group’s revenue has dropped 90% from $1.546B to $160M. From the highlights above we read that FLT’s main response was cutting costs where possible. This effort has paid off in the income statement where we see expenses have been roughly cut in half across the board. The group had an end loss of $317M, giving the group a negative eps of -117.2 cents per share.
We can see that despite a challenging year their balance sheet has remained robust. Assets have only marginally reduced despite the 90% loss of revenue. Liabilities have remained low as the groups haven’t taken on further debt.
The group still has $1.67 billion cash on hand. Given current expenditures, the company seems to be well-capitalized for the foreseeable future. We don’t expect the need for a meaningful capital raise.
Cash Flow Statement
In the cash flow statement, we see an inflow of $426M from financing activities. FLT reports $400m raised from the issue of convertible notes, and $117m raised from the Bank of England COVID-19 financing facility.
Should I Buy Flight Centre Shares: Technical Analysis
In summary, a short-term rebound to $17.4 is likely. The alternative scenario is that a downside breakout of $14.3 would call for $13.1 and $12.5.
Here’s a breakdown of the detailed Technical Factors;
FLT Shares: Cap Raise and Bail Outs
In the midst of the recession, Flight Centre was desperate to get a piece of the government $1.2 billion bailouts.
“It is a very small, very meagre package at best,”Flight Centre’s Graham Turner
With little to no government aid, FLT managed to bail itself out with a capital raise announced in April 2020.
Here are the details:
- •A ~$700 million fully underwritten equity capital raising, comprising a ~$282 million institutional placement (Placement) and a ~$419 million 1-for-1.74 accelerated pro-rata non-renounceable entitlement offer (Entitlement Offer) (together, the Equity Raising);
- •A $200 million increase in commitments from existing lenders
- Confirmation that the previously announced cost control initiatives and cash preservation initiatives are anticipated to reduce annualised operating expenses by approximately $1.9 billion2 (to approximately $65 million per month, by the end of July 2020).
This placement was largely successful raising approximately A$562 million at A$7.20 per New Share.
FLT Shares: Insider Ownership and Trading
Flight Centre has decent insider ownership of around 17%. Meanwhile, general investors own 39.3%, and institutions own 35.5%, and the remaining 7.9% owned by private companies.
Graham ‘Skroo‘ Turner is the major insider and CEO owning $275 Million of FLT.
There has been no insider trading activity in 2021.
The Travel Sector Crash
The travel sector has realized massive losses over the past year. With the three big-name brands (QAN, FLT, WEB) now being available at discounts of around 30-50%, while the market has largely recovered, investors are starting to see opportunity in these stocks that have been left behind.
For the foreseeable future international table is off the tables. The latest federal budget has indicated that Australia is likely to be closed off from international travel until at least mid-2022.
Here’s our analysis of the Travel Sector.
The COVID-19 pandemic has caused severe disruptions to tourism, both globally and in Australia. The industry experienced:
- a sudden halt in international visitation
- restrictions on domestic mobility
- increased health and safety concerns.
Australia’s proactive management approach to the pandemic has played a key role in protecting domestic demand for tourism. The general success in containing the virus has further improved the perception of safety for Australian tourism destinations.
In late September 2020, two-thirds of Australians stated they felt safe to travel within Australia. This was up from 45% in late July 2020. However, only:
- 51% of people intend to travel in Australia in the next six months
- 14% intend to book a holiday in the next month (as at 23 September 2020).
The COVID-19 impacts on aviation were immediate and severe. They forced the industry to adapt quickly in the face of mass disruptions.
- Volatile border closures and the sudden loss of consumer demand saw a 95% drop in the total number of domestic passengers carried in the June quarter 2020, compared with June quarter 2019 (Source: Bureau of Infrastructure and Transport Research Economics, Aviation Statistics, 2020).
- Domestic overnight trips that included air travel fell from 24% to 6% in the June 2020 quarter compared with June 2019.
- Virgin Australia entered voluntary administration in April 2020. It was later acquired by United States private equity firm Bain Capital.
- Australia’s primary airline carriers, Qantas and Virgin, announced thousands of job cuts. The stop-start nature of domestic border closures placed extreme pressure on airline operations.
- The effects of heavily reduced airline activity have flowed onto airports. Many had to lay off staff and close business on certain days in order to remain afloat.
Flight Centre Shares: Future Prospects
At this stage, the future prospects are obviously unclear. From the above statics, we clearly see the international travel sector has died for the foreseeable future. On the other hand, we are starting to see a strong recovery in domestic travel. FLT is relying on this strong return as they have significant exposure to domestic/regional travel.
“FLT is targeting a return to breakeven in both leisure and corporate travel during the 2021 calendar year on the basis that domestic borders are likely to open permanently and some (low risk) international travel may be permitted”
The return of domestic travel has had a positive impact on the return on revenues as bookings are returning.
Here’s what FLT highlights as their current outlook:
- No guidance provided – stable cost base but lack of clarity around revenue trajectory is given no timeframes for restrictions to be lifted
- Domestic recovery expected in near-term – after permanent border re-openings
- Expecting some international travel later in 2021 – low-risk travel corridors after vulnerable people and groups are vaccinated (seems optimistic to us)
- Securing long-term relationships with key suppliers – multi-year agreements, attractive global deals
Should I Buy Flight Centre Shares: Prophet’s Take
Here at Prophet, we believe strongly in the saying Few Bets, Infrequent Bets, Massive Bets in the Stockmarket. We only invest where we see massive upside with very little downside and then we back the truck up and make a massive bet.
Flight Centre has been able to maintain a strong balance sheet which has allowed them to function despite the losses and will allow them to continue to do so for the short term. Despite such a challenging environment they have responded well cutting costs and maintaining cash. Although domestic travel is returning international travel still seems off the table for the foreseeable future.
At the current prices, we don’t see a massive opportunity in FLT. We are currently RANGE on FLT and expect to see the share price travelling sideways until the return of international travel.
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