The Flight Centre share price has collapsed 20% in the last 6 months, but have the fundamentals improved?

The Flight Centre Travel Group Ltd (ASX: FLT) share price has been a significant underperformer over the past six months. It’s down by around 25%. That compares to a decline of just 0.4% for the S&P/ASX 200 Index (ASX: XJO).

It’s an interesting time for ASX travel shares. Demand for travel is very high, though share price performance has been varied. The Corporate Travel Management Ltd (ASX: CTD) share price has dropped 24% in the last six months, though the Webjet Limited (ASX: WEB) share price is up around 1%.

What’s the latest that could have impacted Flight Centre shares?

The business held its annual general meeting (AGM) a couple of weeks ago.

Flight Centre said that there is “considerable pent-up demand yet to flow through”

The company said that there is resilience of global travel market and there is a greater need for expert assistance given the “current complexity” of the travel situation, but this “plays to Flight Centre’s strengths in both leisure and corporate”.

Management believe there is upside potential as normal travel patterns resume.

Year on year, the business had seen a lot of growth for the four months to 31 October 2022. The total transaction value (TTV) had grown by 246% to $6.8 billion, with revenue growth of 248% to $667 million.

It also reported that in those four months it had made $61 million of underlying earnings before interest, tax, depreciation and amortisation (EBITDA) – up from a loss of $137 million – and that it was breakeven at the underlying profit before tax (PBT) level, up from a loss of $194 in the prior corresponding period.

The company’s outlook and guidance for FY23 was one of a recovery and improvement.

FY23 commentary

Flight Centre said it expects to generate stronger profit growth in the months ahead, thanks to “ongoing solid demand and margin improvement trajectory”.

In the first half of FY23 it’s targeting $70 million to $90 million of underlying EBITDA. Further recovery is expected as the year progresses, with a more rapid improvement during the second half – usually 60% to 70% of profit is generated during this period.

The company’s revenue margin is “likely to remain below pre-COVID highs” because of “ongoing and planned business mix changes, cyclical factors and lower supplier margins in some countries and sectors.

However, the impact of lower revenue margins is expected to be offset by cost margin improvements – the cost base is “fundamentally and structurally lower than pre-COVID” times.

It’s targeting a 2% profit before tax margin by 2025.

However, it noted that lack of airline capacity and competition is still hampering a recovery in Australia, though the outlook is “slowly improving”. It’s expected to be back to 70% of pre-COVID levels by the end of the first half.

The business is monitoring economic challenges, such as inflation and higher interest rates, but there is “no noticeable impact on demand as yet”.

Flight Centre also said that its balance sheet is “solid” and that key assets are either in-tact or strengthened.

Foolish takeaway

It is curious that the Flight Centre share price has gone backwards while its recovery has continued. Time will tell whether investors are right to send it backwards or whether the ASX travel share is a bargain opportunity if investors are being too pessimistic.

The post The Flight Centre share price has collapsed 20% in the last 6 months, but have the fundamentals improved? 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 Corporate Travel Management Limited, Flight Centre Travel Group Limited, and Webjet Ltd. 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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