Comprehensive Valuation Report: Flight Centre Travel Group Limited

This report evaluates the financial performance of Flight Centre Travel Group Limited (FLT), an Australian public listed company, within the context of the Australian airline industry. It examines the company's share price performance, recent and overtime financial results, and current macroeconomic and microeconomic factors affecting its performance. A peer comparison with Helloworld Travel Limited, Webjet Limited, and Corporate Travel Management Ltd is conducted, alongside a Du Pont analysis to assess profitability. The report further includes a valuation analysis using the Capital Asset Pricing Model (CAPM) and Dividend Discount Model (DDM) to determine the intrinsic value of FLT shares and compares it to the market value, followed by a sensitivity and scenario analysis to provide a comprehensive overview of the company's financial standing and future prospects.

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Company Valuation
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Executive Summary:
The current report is prepared with the intent to evaluate the financial performance of a public
listed company in Australia. The organisation selected for meeting the purpose of this report is
Flight Centre Travel Group Limited (FLT). The airline industry of Australia has experienced a
steady growth over the past five years. However, the fuel prices have increased drastically over
the years after the global economic recession and as a result, the airfares have increased
considerably. By comparing with the major competitors of the organisation, it has been found out
that Helloworld Travel Limited is placed in a favourable position in the Australian aviation
industry followed by Webjet Limited and Flight Centre Travel Group Limited. The assessment
would also be showing valuation of the business for which computation of Beta and required rate
of return is also shown. The assessment also includes Dividend Discount Model analysis for the
purpose of computing the intrinsic value of the business and make comparison of the same with
the market value of the shares of Flight Centre Travel Group Limited (FLT).

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Table of Contents
Part 1................................................................................................................................................3
1.0 Introduction:..........................................................................................................................3
2.0 Recent Financial Performance:..............................................................................................4
3.0 Overtime Financial Performance:..........................................................................................5
4.0 Current Issues:.......................................................................................................................6
4.1 Macroeconomic Factors:.......................................................................................................6
4.2 Microeconomic Factors:........................................................................................................7
5.0 Peer Comparison:...................................................................................................................8
6.1 Du Pont Analysis:................................................................................................................11
Part 2..............................................................................................................................................16
Valuation Analysis of CAPM Approach...................................................................................16
Dividend Discount Model..........................................................................................................18
Difference Between Intrinsic Value and Market Value............................................................20
Appropriateness of Dividend Discount Model..........................................................................21
Sensitivity and Scenario Analysis.............................................................................................22
References:....................................................................................................................................24

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Part 1
1.0 Introduction:
The current report is prepared with the intent to evaluate the financial performance of a
public listed company in Australia. The organisation selected for meeting the purpose of this
report is Flight Centre Travel Group Limited (FLT), which is involved in providing retailing and
travel services for corporate, leisure and wholesale travel sectors in Australia, New Zealand,
Africa, USA, Asia and Europe (Flight Centre Travel Group, 2018). Therefore, for evaluating the
financial performance of the organisation, the analyses considered include share price analysis,
ratio analysis and stock price valuation using the dividend discount model.
2.0 Recent Financial Performance:
Figure 1: Share price performance of Flight Centre Travel Group Limited for the years
2014-2018
(Source: Finance.yahoo.com, 2018)

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From the above figure, it is evident that the share price of the organisation has started to
decline from 2014 until the first quarter of 2015 and fluctuating trend could be observed over the
years as well. From June to August in the year 2018, the insiders of the organisation have sold
more shares. The individual insiders own 29.84 million shares in the business, which constitute
of 29.52% of the overall number of outstanding shares (Howe, 2018). According to the earnings
expectations of the analysts, an increase of 30.67% is estimated over the next three years and
thus, this denotes a strong outlook for Flight Centre Travel Group Limited. However, this has not
been consistent with the signal that is sent by the company insiders with their net selling activity.
In case of line items, the organisation would experience restrained top-line growth level
over the upcoming year; however, a strong growth in earnings is expected to 10.88% as well.
This might due to sound cost minimisation initiatives that the organisation has undertaken for
driving greater earnings. However, this practice might not be feasible for the long-term and this
might prompt the insiders in reconsidering their shareholdings (Misund, Osmundsen &
Sikveland, 2015). In opposition, they might perceive that the stock has been overvalued by the
market in order to depict favourable selling environment. Moreover, it has been evaluated that
Flight Centre Travel Group Limited has acquired Unmapped, a technology-based organisation in
Canada, on 21st September 2018, due to which decline in stock price could be observed in the
third quarter of 2018.

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3.0 Overtime Financial Performance:
Figure 2: Overtime share price performance of Flight Centre Travel Group Limited
(Source: Finance.yahoo.com, 2018)
According to the above figure, it could be observed that the share price of the
organisation has increased from 2000 to 2001 after which a decline could be observed in the year
2002. The reason was that the organisation was going through a massive restructuring stage due
to which decline could be observed in the year. However, the stock price has started to increase
from 2005 to 2009 with significant decline observed in 2009. After 2009, the stock price has
increase until 2014 due to rise in profit level and liquidity. Finally, further increase could be
observed until 2018, as it has successfully acquired a number of organisations due to which its
goodwill has improved. As a result, it has positive impact on the overall share price of the
organisation.

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4.0 Current Issues:
4.1 Macroeconomic Factors:
There are certain macroeconomic factors that have direct impact on the financial
performance of Flight Centre Travel Group Limited and they are demonstrated briefly as
follows:
Individual income:
The social trends and conditions as inherent with respect to the airline sector have impact
on the performance of the organisation greatly. An evaluation of the Australian airline sector
indicates that the social trends have affected the same. This suggests that there has been greater
level of acceptance of low cost air travelling services within the customers (Brigham et al.,
2016). This is mainly due to the fact that there has been reduction in the purchasing power of the
consumers towards leisure services because of fall in income level. This has affected the airlines
like Flight Centre Travel Group Limited providing premium class air travelling services.
Growth of the industry:
The airline industry of Australia has experienced a steady growth over the past five years.
However, the fuel prices have increased drastically over the years after the global economic
recession and as a result, the airfares have increased considerably. The low income, increased
levels of unemployment and unavoidable disasters such as ash cloud have minimised the overall
air travel demand in Australia.
Government regulation:

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The Australian airline industry has been deregulated and this deregulation has eliminated
the barriers for the new organisations to tap into the airline market of the nation (Collewaert &
Manigart, 2016). This has direct effect on organisations like Flight Centre Travel Group Limited,
as they are old market players and they would be affected significantly by this regulation. The
preference of the travellers keeps on varying over the years from one airline to another; however,
with the value of money, the selection of individuals for travelling through air has risen.
4.2 Microeconomic Factors:
There are certain microeconomic factors those are deemed to impact the financial
performance of Flight Centre Travel Group and these are explained under:
Operation
The current business operations of Flight Centre Travel Group are focussed on
positioning itself as leader in air travel business through expanding its online presence through
rolling out flagship stores. The company’s Australian operations is observed to improve and
attain increased profits. Moreover, majority of its operations is carried out offline with physical
stores to attain 95% sales in the current year along with that its online operations will contribute
to 5% growth in its sales (Penman, 2015).
Level of Debt
The level of debt for Flight Centre Travel Group is observed to be 35.50 M for the year
2018. Moreover, the debt-to-equity ratio of the company is 6.89% for the year which indicates it
is likely to face low risk related with debt (Schmidlin, 2014). Moreover, the debt levels are
sustainable through measuring interest payments against earnings of the company.
Directions, Goals

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Flight Centre Travel Group is focussed on setting goals to bring in charge through
aggressively increasing its online presence. The company has set directions to maintain its
growth by developing plans to boost online along with call centre sales along with developing a
network of independent home-based contractor travel agents all through Australia (Rojo-
Ramírez, 2014).
Competition
The major competitors for the company are observed to be Hello world Travel Ltd,
Webjet Ltd and Corporate Travel Management Ltd. Flight Centre Travel Group is not able to
increase its ticket prices for the strong competition faced by it in the travel industry. Its
competitors are observed to offer cheap priced tickets in comparison to this airline company.
5.0 Peer Comparison:
Helloworld Travel Ltd
From analysing the share price trend of Helloworld Travel Ltd it has been observed that
the share prices of the company are observed to increase from the year 2014 to the year 2018.
Such increase in the company’s share price is because of its highly competitive rebranding
marketing initiatives that evidences its strong financial performance. The new branding was
successfully rolled out across the network all through its business locations. Moreover, an
increase in the company’s share price is observed because of its increase in cruise, corporate
along with air business along with improved contracting outcomes were important factors in
increasing its turnover result for the year. The acquisition decision of the company for Magellan
Travel Group has been successful in attaing 10.3% over the recent months (Helloworld Travel
Limited., 2018).

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Figure 3: Share Price Performance of Helloworld Travel Ltd
(Source: Finance.yahoo.com, 2018)
Webjet Ltd
The share price performance of Webjet Ltd is observed to increase for over five years due
its enhanced financial performance over the years. It has been observed that in case of Webjet
the company has attaining an exceptional profit that has materially eaten the market expectations
with its share price up to 12% (Webjet Limited., 2018). Moreover, the company has also attained
exceptional performance in its domestic along with international flight bookings growing more
than 6 times the Australian market rate. The company’s Australian operations is observed to
improve and attain increased profits. The company has also evidenced an increase in its final
dividend because of its strong improvement in its core business earnings.

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Figure 3: Share Price Performance of Webjet Ltd
(Source: Finance.yahoo.com, 2018)
Corporate Travel Management Ltd
From the figure below, it is observed that share prices for Corporate Travel Management
Ltd has increased over the five years duration. Such increase in the share prices of the company
has been evidenced because it has evidenced 10% increase in its profits as it has attained a
competitive advantage of offering innovative and cost-effective travel management solutions
within the corporate market. Strong organic growth underpins its EBITDA performance with
growth increase of 29% (Flight Centre Travel Group., 2018). CTM model developed by the
company continues to offer earnings that increases transactional volume growth that increased its
revenue margin. The company has also evidenced an increase in its final dividend because of its
strong improvement in its core business earnings. The growth in the share prices of the company
is observed to take place because of the reason that it has a highly profitable high growth model,

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long term sustainability along with earnings certainty, enhanced EBITDA margin along with
high compound earnings per share.
Figure 3: Share Price Performance of Corporate Travel Management Ltd
(Source: Finance.yahoo.com, 2018)
6.1 Du Pont Analysis:
In order to conduct Du Pont Analysis, the three ratios that have been considered include
net profit margin, total asset turnover and financial leverage. The detailed calculations of these
ratios for each of the three organisations are presented as follows:
Flight Centre Travel Group Limited:
Particulars 2018 2017 2016 2015 2014
Net Revenue A 2,949,95 2,769,70 2,641,77 2,396,989 2,244,569