Will Bargain Buyers Pick Up a Wounded Flight Centre?

On Monday, Flight Centre Travel Group [ASX:FLT] released a subpar trading update. In their update, Flight Centre showed investors how great sales don’t always translate into profits. Flight Centre is well on their way to beating previous annual sales of $1.4 billion. And their total transaction value for 2016 is expected to surpass 2015 figures by $1.4 billion.

Yet, even though sales are on track, profits are a different story. In 2015, Flight Centre reported a profit before tax (PBT) of $366 million. However, an upcoming key trading period (May–June) may put 2016 PBT 2–5% below 2015 figures.

Trading results for the 10 months leading up to 10 April showed weakening demand. And Flight Centre has blamed the upcoming Australian Federal election, and next month’s UK referendum, as reasons for slacker demand.

Even though the expected figures from above would be Flight Centre’s third best ever, it’s below initial guidance of 4–8% from 2015 figures. Competitive prices are also expected to hamper their ability to hit some supplier targets.

Flight Centre is not alone in providing excuses for weaker demand. Qantas Airways [ASX:QAN] and Virgin Australia Holdings [ASX:VAH] have also blamed the upcoming election. While it may add to consumer uncertainty, it should do little to the bottom line. Yet, because its impact is not really understood, it makes for a good excuse.

Flight Centre’s shares have fallen by 13.15%, to $32.46 per share, since open on Monday. Year to date, shares are down 18%. But have they fallen too far?

Flight Centre’s share price

Source: Google Finance

Is it time to buy Flight Centre?

I don’t see Flight Centre’s shares soaring up any time soon. Yet whether it’s time to buy Flight Centre or not is purely up to individual investors.

Do you believe that the federal election, among other events, will hurt Flight Centre’s profits? If so, then it’s probably not an ideal time to buy. But if you think the opposite is true, get your chequebook out.

However, instead of looking at this as a negative, let’s put our optimistic hats on.

Right now, you could probably get yourself a $900 flight to New York. Provided you looked hard enough and at the right time. Prices are at rock bottom. Sure, it’s not good for profits right now.

But think about the long term. If prices are at rock bottom, there’s only one place they can go — up! Flight Centre has also made it clear that they’re investing in future growth. Under boss and founder Graham Turner, they have a long history of delivering for shareholders.

This could definitely hurt margins during the financial year 2017. Yet, Turner plans to deliver shareholders value over the long term. Keep in mind that it’s important to invest in businesses which expect to grow over the next 100 years. Trying to make a balance sheet look good from year to year isn’t a sustainable business model.

Härje Ronngard,

Junior Analyst, Money Morning

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