Flight Centre Earnings: A Leisurely AUD 500 Million Turnaround in Underlying EBITDA

We lift our fair value estimate on Flight Centre FLT by 5% to AUD 20 per share. The strong turnaround in fiscal 2023 underlying EBITDA to AUD 302 million, from a loss of AUD 183 million, was as recently guided. However, the 126% jump in revenue to AUD 2.3 billion was 9% ahead of our expectations, reflecting a higher-than-expected yield on the AUD 21.9 billion in total transaction value, or TTV, which more than doubled.

The leisure result was particularly stellar. The 172% rise in revenue propelled the unit’s fiscal 2023 underlying EBITDA to AUD 172 million, from a loss of AUD 160 million a year ago. Management did not waste the COVID-19 crisis, as pretax profit/revenue hit 9.0% in fiscal 2023, from 6.4% prepandemic. This is despite leisure TTV being 30% below pre-COVID-19 levels. It shows the benefits of an increasingly omnichannel offering and continuing productivity and efficiency gains, on a much-reduced retail store footprint.

Momentum in leisure is the principal driver of the average 4% upgrade to our underlying EBITDA forecasts, and the increase in our fair value estimate. We remain cognizant of the potential impact of economic uncertainties on discretionary expenditures, which we believe encompass travel spending, contrary to what management says. However, the positive structural changes in the leisure unit are tangible. The relative resilience and balance afforded by the corporate travel unit are also clear, accounting for 43% of group revenue, at EBITDA margins of 19.4% versus 15.3% for leisure. Critically, the higher-than-expected final fully franked DPS of AUD 0.18, after three and a half years of pandemic-induced suspension, sends a confident signal on continuing earnings recovery and the balance sheet.

The muted reaction of Flight Centre’s shares to the result is more attributable to investors’ high expectations than anything fundamentally disappointing. Shares in the no-moat-rated group are now trading just above our intrinsic assessment.