Up cycle now, page-151

rom:BRISNOTES/Morgans/AU <BRISNOTES/Morgans/[email protected]>On Behalf Of[email protected]
Sent:Tuesday, 4 May 2021 10:31 PM
Subject:RESEARCH NOTE: Flight Centre Travel (FLT) - Late cycle recovery trade (HOLD - maintained, TP A$19.00)

Flight Centre Travel (FLT) PDF Late cycle recovery trade HOLD (maintained) | current price:A$16.14 | target price: A$19.00(previous: A$19.21)

§FLT's trading update highlighted that TTV continues to improve slowly, with Corporate tracking well ahead of Leisure (greater exposure to international travel). §While difficult to forecast a travel company's earnings in the early stage of the recovery, the surprise was that while 2H21 TTV is well up on the 1H21, FLT expects a similar size loss in the 2H as the 1H. Cash burn has increased slightly given JobKeeper has concluded. Importantly, FLT has plenty of liquidity. §We have revised our forecasts. We expect earnings to fully recover in FY24. §We retain a Hold rating for now but note that FLT's valuation is starting to screen more attractively on normalised earnings. We would be buyers on any further material share price weakness.

3Q21 update – activity gradually recovering FLT noted that 3Q21 TTV was >A$1bn (vs. ~A$1.5bn TTV in 1H21), with record COVID revenue delivered in March following subdued activity in January and February due to border restrictions. At quarter end, Corporate TTV was 29% of pre-COVID levels, with Australia leading the recovery (albeit revenue margins are low), while Leisure is at only 14% due to its high international travel exposure. FLT said that it has won a significant number of new Corporate clients so far in FY21. Cash burn and liquidity As at 31 March-21, FLT had total liquidity of ~A$1.1bn (vs. A$1.2bn at 1H21), which was bolstered by its GBP50m loan from the Bank of England. FLT's monthly cash burn averaged A$30-40m/month during the 3Q21, rising from A$30m/month in Dec-20 and reflecting the combined impact of persisting travel restrictions and reduced JobKeeper subsidies. Fixed costs remain at A$70m/month, however variable costs are increasing slightly as activity and staff incentives return. We continue to believe FLT has sufficient liquidity to navigate these challenging industry conditions. FY21 guidance is softer than expected April activity was expected to continue to improve on March, with the group's US Liberty Leisure business returning to profitability and the US Corporate business recovering strongly. FLT expects that the 2H21 underlying NPBT loss will be broadly in line with the 1H21 NPBT loss of A$247.2m, implying a loss of ~A$494m which was below consensus expectations (A$355.3m). The anticipated recovery in 2H21 sales is expected to be largely offset by the end of JobKeeper, while the improvement in the UK, Canada, India and South East Asia has been more modest. FY22 return to profitability (on a monthly basis) reiterated FLT reiterated that it continues to target a return to profitability during FY22 on a monthly basis in both its Corporate and Leisure businesses, assuming a stable fixed cost base and a gradual recovery in revenue. Management expects Corporate to return to profit ahead of Leisure (targeting Corporate TTV of ~50% of pre-COVID by CY21) and highlighted the importance of future travel bubbles starting to open. Forecast changes Following FLT's weaker than expected 2H21 guidance, we have increased our FY21F underlying NPBT loss to A$489.0m (in line with implied guidance) from A$446.8m previously. Due to more conservative assumptions on the rate of the recovery, we have also moderated our FY22/23F underlying NPBT by 69%/24%. We continue to assume FLT returns to its FY19 NPBT in FY24. Due to these unprecedented operating conditions, we stress that earnings uncertainty remains high in the short term. Post forecast changes our blended valuation has fallen to A$19.00 from A$19.21 previously.

Belinda Moore +61 7 3334 4532 [email protected]

yup, can see the non-holders downramping it below. Sure this thing is going to bleed for a while longer and Management gave an honest appraisal of current projected situation. However, there is nothing surer than that this thing is going to recover.
Morgan's gave it a positive broker's note yesterday saying it will become profitable in 2022 ie there is light at the en of the tunnel for LT holders.
IMO Management was conservative in its estimate of when it will recover profitability. There is a huge pent-up demand for flying! We still have some restrictions due to virus popping up in different states from quarantine faiure. That's being addressed. Even the India flight ban is temporary.
When this takes off it the sp will fly like a rocket. I'm sitting tight and will buy the dip if it reaches $13 party. Dont let others celebrate at your expense. We'll meet again here next year when us LT holders will be smiling

Here's Morgans note showing $19 Party to boost your confidence;