The analysis on why I'm buying Flight Centre

by Michael Gable

This week on Stock Watch (http://www.finnewsnetwork.com.au/archives/finance_news_network77034.html), I touched on why the chart for Flight Centre (FLT) is looking very attractive. Fundamentally it is also looking very good, so much so that we added it to our model portfolio. Below is a brief summary of our full research report from this week:
 
 
The negative market reaction post the trading update, commensurate with market downgrades to FY15 earnings reflect the potential impact on earnings in the event that poor consumer sentiment continues into 1H15, now see the stock trading on a FY15 P/E multiple of 15.6x, which does not appear to be an unreasonable multiple to pay for a quality stock like FLT.
 
Incorporating expectations of poor consumer sentiment continuing into 1H15, we note that the Company is still expected to generate low double digit EPS growth of around 10% for FY15, according to consensus estimates. From a fundamental viewpoint, we acknowledge that for the stock to return to recent highs (around $50, which would imply a FY15 P/E of around 17.5x), the Company would need to re-demonstrate its ability to report strong earnings growth (double digit) over the next few years. To this end, domestic leisure demand typically rebounds quickly from the fall in consumer confidence and the earnings are also positively leverage to the rising A$. 
 
Other factors likely to underpin strong earnings growth over the next few years include i) A more meaningful contribution from businesses outside of Australia (as 80% of earnings are currently generated in Australia), ii) FLT gaining further market share in the corporate travel market, iii) The Company’s dual physical stores/online channel gains traction and iv) Margin improvement expected from the transition in strategic positioning from being a travel agent to a retailer of travel products to leisure and corporate customers.
 
The charts suggest that a rally back into the low $50’s is certainly possible, representing a 10%+ return from current levels.

Disclaimer

Disclaimer: Michael Gable is an Authorised Representative (No. 376892) and Fairmont Equities is a Corporate Authorised Representative (No. 444397) of Novus Capital Limited (AFS Licence No. 238168). The information contained in this report is general information only and is copy write to Fairmont Equities. Fairmont Equities reserves all intellectual property rights. This report should not be interpreted as one that provides personal financial or investment advice. Any examples presented are for illustration purposes only. Past performance is not a reliable indicator of future performance. No person, persons or organisation should invest monies or take action on the reliance of the material contained in this report, but instead should satisfy themselves independently (whether by expert advice or others) of the appropriateness of any such action. Fairmont Equities, it directors and/or officers accept no responsibility for the accuracy, completeness or timeliness of the information contained in the report.