Flight Center was ahead of guidance, on revenue, but note that they’d upgraded guidance only back in May, so there was little that was “new news” in the result.

Overall, a very strong recovery in travel, from the pandemic, which you can see has a) taken quite a while, and b) is playing out across all geographies.

By far the best bit of the result was “doing more with less”, highlighted in the text below, 52% increase in TTV (total transaction value) per FTE.

That has helped operating income recover, after some of the most difficult years in FLT’s history.

Now, partly the issue is that to survive, FLT had to issue enormous amounts of stock.

And so, whilst earnings per share might make you think FLT still has lots of room to run to recovery, the actual market cap is pretty high. The dotted line below is the current market cap. It’s not trading at any particularly large discount to history or to the asset base.

The relative value factors don’t suggest that it is overly cheap either.

When looking further out, we can see that consensus estimates do expect an ongoing normalisation in NPAT, with fairly steep hurdles. So it would seem hard for FLT to “surprise to the upside” on earnings, and thus perhaps little reason to expect unusually strong share price returns.

Company guidance supports that rosy NPAT outlook, with management commenting that, so far, in FY24, travel is holding up. Given there have been quite a few downgrades in the consumer discretionary space (DSK, CCX, yesterday, with very weak outlook statements due to higher interest rates and a tapped-out consumer), this is reasonably positive.

Now, the key risk here is not so much that leisure travel rolls over (at the moment, it seems to be driven by cashed-up baby boomers (well, those over 55, based on the bank results data), but rather on the corporate side, where companies might be looking to cut back on travel to defend their own margins in response to the current inflationary environment.

There is also the ongoing/ever-present risk that airlines attempt to change their various commisssion/revenue-incentive schemes with the travel companies. FLT is very large, has considerable market power, but the issue does arise every now and again, which is something to keep in mind.

Overall, not one we are particularly excited by. It trades on 22x. If corporate travel rolls over, the “true” multiple will turn out to be quite a bit higher (that’s bad), and if it doesn’t, if travel stays elevated, than FLT will likely grow into a more reasonably valuation multiple. At the moment, whilst not “priced for perfection”, it is priced for “ongoing recovery” which is at odds with the interest rate cycle.

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