##{"id":58735,"date":"2011-08-25T10:05:19","date_gmt":"2011-08-25T00:05:19","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2011\/08\/25\/flight-centre-sees-double-digit-growth-again\/"},"modified":"2011-08-25T10:05:19","modified_gmt":"2011-08-25T00:05:19","slug":"flight-centre-sees-double-digit-growth-again","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2011\/08\/25\/flight-centre-sees-double-digit-growth-again\/","title":{"rendered":"Flight Centre Sees Double Digit Growth, Again"},"content":{"rendered":"

\n\t– Flight Centre delivers record FY11<\/span> earnings
\n\t– Guidance is for further growth in FY12<\/span>
\n\t– Forecasts little changed, targets trimmed on lower market multiples
\n\t– Buy ratings continue to dominate<\/strong><\/p>\n

\n\tBy Chris Shaw<\/p>\n

\n\tWhile the consumer discretionary sector is doing it tough at present not all companies are finding the going so difficult, as travel group Flight Centre ((FLT<\/span>)) has been able to shrug off adverse conditions to record underlying profit growth of 18.6%.<\/p>\n

\n\tFlight Centre recorded full year earnings of $170.7 million, the result driven by both attractive ticket prices and a rising Australian dollar. The record result has been followed by management guiding to another year of double-digit earnings growth in FY12<\/span>.<\/p>\n

\n\tAs RBS<\/span> Australia notes, this guidance comes despite difficult trading conditions in both the US and UK markets and a weak domestic tourism market in Australia. What should help in achieving guidance is the expectation of a further recovery in the corporate travel market.<\/p>\n

\n\tAn advantage of growth in corporate travel according to Citi<\/span> is a lower cost structure, which supports the view the decline in income margin recorded across FY11<\/span> is not a major concern.<\/p>\n

\n\tBA Merrill Lynch agrees given expectations of an increase in sales efficiency through an improvement in operating systems. Further cost efficiency measures are also expected, something BA-ML anticipates will likely see margins return to more normal levels of 13-14% over the coming years.<\/p>\n

\n\tFor shareholders there is also potential for capital management, Goldman Sachs seeing a special dividend as a possibility given an ungeared<\/span> balance sheet and cash in excess of regulatory requirements of $50-$100 million at present.<\/p>\n

\n\tOn the back of the profit result Flight Centre has enjoyed some increases to the earnings estimates of brokers, with Goldman Sachs lifting its earnings per share (EPS) forecasts by 2-3% in coming years and Macquarie lifting its FY12<\/span> forecast by 4%. <\/p>\n

\n\tConsensus EPS estimates according to the FNArena<\/span> database now stand at 187c<\/span> for FY12<\/span> and 201.3c<\/span> for FY13<\/span>. This compares to the 169.6c<\/span> achieved in FY11<\/span>.<\/p>\n

\n\tPrice targets have generally come down however, Citi<\/span> seeing this as a reflection of a compression in peer multiples following recent market weakness. The consensus price target according to the database now stands at $23.79, compared to $25.38 prior to the result. Targets range from Macquarie at $19.00 to Deutsche Bank at $25.50.<\/p>\n

\n\tFor most in the market the expectation of further solid earnings growth for Flight Centre is enough to justify a positive view, the database showing Seven Buy ratings and only one Neutral recommendation, this courtesy of Macquarie.<\/p>\n

\n\tOutside of the database both Goldman Sachs and Morgan Stanley rate Flight Centre as a Buy, the latter within an In-Line view on the Australian Emerging Companies sector. Buy ratings are also valuation calls, Morgan Stanley suggesting an estimated earnings multiple of 10.1 times for FY12<\/span> is attractive given Flight Centre is a market leader enjoying structural tailwinds at present.<\/p>\n

\n\tRBS<\/span> agrees there is value at current levels, while also pointing out a fully franked dividend yield of around 5% in FY12<\/span> is attractive. Macquarie is simply more cautious, seeing a softening demand environment and the fact Flight Centre will be cycling record numbers in FY12<\/span> as enough to make continued outperformance<\/span> more difficult.<\/p>\n

\n\tShares in Flight Centre have traded within a range over the past year of $17.44 to $25.12. The current share price implies upside of around 23% to the consensus price target in FNArena's<\/span> database. <\/p>\n

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