established: 1982, ASX code: FLT, homepage: www.flightcentre.com

Overview
Flight Centre is arguably the most dominant player on the Australian retail travel services market with significant international exposure. Apart of it own flagship Flight Centre travel offices it also generates significant earnings from fully owned specialized travel agency chains such as Student Flights, Escape Travel and various leisure businesses including Quickbeds.com, Travel Associates and others.

Analysis of 2007 financial results

• Market Cap: Depending on the daily stock price of this company the total market capitalization is around $2.4 billion over 94 million shares on issue
• Shareholders Equity: $484 million making the stock’s book value approx. $5.15 per share (18% growth on FY2006)
• Earnings per share: $1.28 making the average EPS growth in last 3 years about 17.5%
• Return on Equity: 24.8%, averaging around 20.5%pa in last 3 years
• Balance Sheet: Working capital of $223.1 million (ie. $2.4 per share) versus total debt of $75.3 million

Sharemaket’s valuation:
Average FLT’s Price to Earnings ratio of 19 suggests the share price around $24.3 ($1.28 EPS x 19 P/E)

GROWTH STOCK

• Conservative forecast of average EPS growth in next 10 years: 14%
• Share price in 10 years time: about $90 (EPS in year 10 based on forecasted yearly EPS growth times average P/E)
• Total shareholders return in 10 years times: $105 (share price of $90 plus $15 of the 10 years worth of dividends if the current payout ratio of 55% persists)
• Rate of Return in next 10 years based on end of November 2007 price of $26.5 per share: 14.8%pa

Pros and cons:
+++ Dominating company within its industry
+++ Excellent both ROE and EPS growths not only in currently prevailing booming market conditions, but also if averaged long term
+++ Strong balance sheet (entire debt could be easily wiped out by part profits of one single year)
— Operates in cyclical industry where profits are to be affected by both global and local economy performances, fuel costs, levels of disposable incomes and similar factors
— Stock trades constantly at high P/Es and obtaining it at comfortable margin of safety levels is very difficult

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This entry was posted on Thursday, November 22nd, 2007 at 3:36 pm and is filed under Australian stock. You can follow any responses to this entry through the RSS feed. You can leave a response, or trackback from your own site.