Should you buy Flight Centre Shares?

Richard Hemming


Flight Centre provides travel service for leisure and business travellers in Australia, New Zealand, the United States, Canada, the United Kingdom, Africa, Middle East, Asia, New Zealand, and Europe. Flight Centre consists of more than 30 brands. Access our research and sign up for a free trial today

The big thing Flight Centre has in its favour is $1.9bn of cash at 31 July and when you take away short-term liabilities and JobKeeper subsidies, it still has $1.1bn.

To say that this has been a company in distress from the COVID-19 induced border closure and world wide travel restriction is an understatement. Flight Centre did one of the most dilutive capital raisings in the crisis, almost doubling its shares on issue after raising $700m at $7.20 a share, almost half where they now trade and a fraction of their $60 level in mid-2018. It was notable that its founders, who owned 42% of the stock before raise, took up a fraction of their entitlement.

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What's happening now?

The structural decline we saw has been accelerated and now FLT is in a race to slash costs by closing stores, reducing “headcount”, giving it leverage to grow profits at a fast rate when the dust settles and a vaccine (hopefully) appears.

Having made an $849m loss in FY20 the company has now cut its store numbers in half and stood down 70% of its 20,000 strong workforce as volumes across major Australian airports are down 95%. FLT is relying on concentrating on its corporate business for cash flow. International travel, historically its primary earner, isn’t forecast to return to normal before FY23/24.

Should you buy Flight Centre shares? 

The market is anticipating profitability in FY23, leading to aggressive profit growth. We believe that the recovery in Flight Centre’s business will take longer than the notoriously optimistic analysts believe and that its cash will be a declining asset.

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About the Author

Richard Hemming

Richard Hemming (r.hemming@undertheradarreport.com.au) is an independent analyst who edits www.undertheradarreport.com.au, which provides investment opportunities in Small Caps that you won’t get anywhere else.

Under the Radar Report is licensed to give general financial advice only (AFSL: 409518). The author does not own shares in any of the stocks mentioned.

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