Should I buy Flight Centre shares at $19?

The Flight Centre Travel Group Ltd (ASX: FLT) share price has shot higher in 2023 – it’s up by around 30%. That’s an excellent return considering the S&P/ASX 200 Index (ASX: XJO) has only risen by 5% in 2023 so far.

The ASX travel share has done very well but, interestingly, it’s at a price that’s lower than where it was for a lot of the first half of 2022.

Maybe investors were too optimistic too early last year, but now the share price is reflecting the positive situation.

A couple of weeks ago, the business revealed a number of positives in its FY23 half-year result.

Earnings recap

Flight Centre said that in the first six months of the financial year, it generated $95 million of underlying earnings before interest, tax, depreciation and amortisation (EBITDA). This was 19% higher than the mid-point of its initial first-half target of between $70 million to $90 million while being in line with its upgraded guidance.

That means it was almost a $280 million turnaround from the FY22 first-half loss.

The ASX travel share said that it was profitable in the corporate and leisure divisions, and profitable in nearly all regions except Asia where it was breakeven.

Flight Centre said its total transaction value (TTV) was $9.9 billion and was 80% of its record FY20 half-year result. The corporate business is delivering “record TTV and set to top $10 billion during FY23”.

The company said there are positive margin trends as the company targets a 2% underlying profit before tax (PBT) margin by the end of FY25. It noted a record low underlying cost margin (of under 10%), while the revenue margin is trending “upwards”.

FY23 guidance

Reassuringly, Flight Centre reaffirmed its FY23 guidance with no signs of a slowdown in the early part of the FY23 second half. Guidance can have a notable impact on the Flight Centre share price if it wasn’t what the market was expecting.

Excluding the acquired Scott Dunn, Flight Centre is targeting $250 million to $280 million of underlying FY23 EBITDA.

January 2023 saw a post-pandemic record for monthly TTV and profit in leisure. There was also an acceleration of corporate activity from mid-January. China is seeing a “solid rebound” after the COVID reopening.

Is the Flight Centre share price a buy?

The ASX travel share is now seemingly firing on all cylinders and it’s benefiting from the strong demand.

Analyst estimates suggest that profit will return to normal in FY24 and FY25. Current Commsec projections are for earnings per share (EPS) of $1.01 in FY24 and $1.24 in FY25.

That puts the current Flight Centre share price at 19 times FY24’s estimated earnings and 15 times FY25’s estimated earnings.

In FY25, the dividend could normalise with a possible payment of 64 cents, which would be a grossed-up dividend yield of 4.9%.

I think that Flight Centre shares could rise more during 2023. However, investors are now expecting a strong profit rebound. Flight Centre would need to positively surprise investors even further to outperform, in my opinion.

I wouldn’t be rushing to try to buy at this price, but I think the company has a promising future and may be one of the few ASX 200 shares to report profit growth in both FY23 and FY24 amid wider economic uncertainty.

The post Should I buy Flight Centre shares at $19? appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Flight Centre Travel Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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