- Solid earnings growth outlook for Flight Centre
- Early FY12 trading in line with guidance
- Stock offers value according to Moelis
- Buy ratings dominate broker views

By Chris Shaw

In FY11 Flight Centre ((FLT)) delivered earnings per share (EPS) growth of 22%, a result that followed on from better than 100% EPS growth recorded in FY10. As stockbroker Moelis notes, FY11 was the first time Flight Centre delivered profits in all 10 of the countries where wholly owned businesses are operated.

Record earnings were achieved in Australia, Canada, India and Dubai, Moelis taking the view this was helped by a supportive operating environment. For Flight Centre this meant stimulatory global airline ticket prices and sustained strength in the Australian dollar helping the domestic outbound travel market.

Not only were results for FY11 a record, but Moelis notes the lift in EBIT (earnings before interest and tax) margins implies some operational improvements were achieved and Flight Centre was able to leverage its scale.

Also boosting earnings was an improvement in the US market, Moelis noting EBIT from that market for FY11 of $1.5 million was a solid turnaround from a loss of $2.3 million the previous year. The improvement followed a restructuring of the US business.

Further earnings growth is expected in FY12, Moelis noting management has guided to profit before tax for the current year of $265-$275 million. This would be an increase of 8-12% over the FY11 result.

While achieving this target may be a challenge given current tough operating conditions, Moelis notes trading in both July and August has been consistent with this guidance being achieved. As a result no changes to earnings forecasts have been made.

In EPS terms, Moelis expects Flight Centre to earn 187.3c in FY12 and 209.2c in FY13. These forecasts compare to consensus EPS estimates according to the FNArena database of 187c and 201.3c respectively.

On the stockbroker's numbers, Flight Centre would be trading on a FY12 earnings multiple of around 10 times, a level seen as attractive given expectations of further growth longer-term from an increase of around 10% in global store numbers from a current 2,243. The earnings multiple for Flight Centre would fall to just over eight times in FY13 according to present estimates, notes Moelis.

Moelis is not the only broker to identify value in Flight Centre, as the FNArena database shows a total of seven Buy ratings and just one Hold recommendation. The sole Hold comes from Macquarie and reflects a somewhat cautious view given a softening demand environment.

But the valuation argument dominates and underpins Buy ratings from the likes of RBS Australia, Citi and BA Merrill Lynch. Also supportive of positive broker views is an attractive dividend yield, Moelis forecasting a yield of 5.0% in FY12 and 5.6% in FY13 based on expected distributions of 94c and 105c respectively. Dividends for Flight Centre are currently fully franked.

The consensus price target according to the database stands at $23.79, which is comfortably above Moelis's target of $22.50.

Shares in Flight Centre have moved within a trading range over the past year of $17.44 to $25.12. At current levels the Flight Centre share price implies upside of of around 28% to the consensus price target in the FNArena database.

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