FLT - Flight Centre Travel Group

ROE · 31 March 2009

Re: FLT - Flight Centre

skc said:
Hey ROE, can I ask what discount rate you use for your DCF calculations, and how you came up with it (e.g. using comparables, historical beta)?

thanks

I use a number of where i can be 100% sure I can get a return which is long term government bonds (5%-7%)....some people use different figure but it to their own preferences.

I dont use Beta or Omega

.... I try to keep it nice and simple and work on lowest figure or average.

wonderrman · 31 March 2009

Re: FLT - Flight Centre

Economic situation looks to be getting worse over the next two years, this doesn't hold well for the airline/travel industry. Even though I don't really use funnymentals in my analysis, that fact alone would keep me away no matter what the price. wonder.

skc · 1 April 2009

Re: FLT - Flight Centre

ROE said:
I use a number of where i can be 100% sure I can get a return which is long term government bonds (5%-7%)....some people use different figure but it to their own preferences.

I dont use Beta or Omega .... I try to keep it nice and simple and work on lowest figure or average.

I am probably reading you wrong...but doesn't a low discount rate returns a higher share price target?

For instance, cash flow of $10 in perpetuity at discount rate of 5% (say the risk free rate) = $200 present value (i.e. share price). Same cash flow, discounted with 10% gives only $100.

By adopting a low discount rate, one would be pricing a share price higher than it should be, and certainly higher than other investors out there... For FLT, I will use a discount rate no less than 11%. This is probably on the low side, given FLT is highly leverged to the overall economy, investors will demand a higher return for the risk.

ROE · 1 April 2009

Re: FLT - Flight Centre

skc said:
I am probably reading you wrong...but doesn't a low discount rate returns a higher share price target?

For instance, cash flow of $10 in perpetuity at discount rate of 5% (say the risk free rate) = $200 present value (i.e. share price). Same cash flow, discounted with 10% gives only $100.

By adopting a low discount rate, one would be pricing a share price higher than it should be, and certainly higher than other investors out there... For FLT, I will use a discount rate no less than 11%. This is probably on the low side, given FLT is highly leverged to the overall economy, investors will demand a higher return for the risk.

True but using un-realistic discount rate you tend to get the price wrong and never enter because it never reach that target price after you factor in margin of safety..

you want to use a rate that provide 100% certain that you get it if u put your money to work from day one and that number is Bond rate...anything higher just not realistic .. can you get 11% discount rate for 10 years?
if yes then use it , if not why use 11% ? use something you can 100% certain to get like bank rate or bond rate.

but anyway it just my opinion like I said diff people use diff rate and that make the market the way it is..

I don't factor too much risk into my return.. I factor certainty more than risk, if I know something for sure going to give me 5 cents return then I rather invest in that than say something that may provide me with 7 cents but not 100% certainty..... and I'm sure FLT going to give me min 35 cents return regardless what risk people perceive it to be, to me i don't consider that is a risk

Uncle Warren said ... Risk comes from unknown, if you know what you get yourself into then its not a risk.. simple concept damn hard to practice

skc · 2 April 2009

Re: FLT - Flight Centre

ROE said:
True but using un-realistic discount rate you tend to get the price wrong and never enter because it never reach that target price after you factor in margin of safety..

you want to use a rate that provide 100% certain that you get it if u put your money to work from day one and that number is Bond rate...anything higher just not realistic .. can you get 11% discount rate for 10 years?
if yes then use it , if not why use 11% ? use something you can 100% certain to get like bank rate or bond rate. but anyway it just my opinion like I said diff people use diff rate and that make the market the way it is..

I don't factor too much risk into my return.. I factor certainty more than risk, if I know something for sure going to give me 5 cents return then I rather invest in that than say something that may provide me with 7 cents but not 100% certainty..... and I'm sure FLT going to give me min 35 cents return regardless what risk people perceive it to be, to me i don't consider that is a risk

Uncle Warren said ... Risk comes from unknown, if you know what you get yourself into then its not a risk.. simple concept damn hard to practice

I see where you are coming from, but it seems to violate some of the more fundamental principles of finance and stock valuation. Essentially you are saying:

1. The cashflow that FLT shareholder will get is as certain as a government bond (hence justifying the use of the same discount rate).

2. Other market participants will share view 1 above and price FLT the same way.

Anyway, not here to educate on corporate finance 101. Good luck with your analysis.

Rainmaker2000 · 2 April 2009

Re: FLT - Flight Centre

I don't really know why this is so complicated.......who cares about discount cash flow models anyway.......if you want more 'certain returns', go for a different issue.....

If you want a living, breathing, somewhat variable retail growth business, you may consider FLT, which last year earned about $1.50 EPS without one offs...it's best result ever

Some people argue that FLT is not the business it was last year....well, I agree...it has 9% more shops for one thing, a few nasty one off losses and an acquired US business that sunk like a stone..

Some have noticed the share price is not as high as last year.....32$ down to 6$......

Does anyone want to bet me this business will never earn above 1.50 EPS? Well, I won't take your bet....who wants a 50/50 returns when this stock will likely trade about 600% higher when it again earns about 1.50EPS.......and all the while spurning tax advantaged income.............skeptical, that's only a PE 20 for a stock which has consistently grown since listing at what, 95 cents I think..... :2twocents

skc · 4 April 2009

Re: FLT - Flight Centre

Rainmaker2000 said:
I don't really know why this is so complicated.......who cares about discount cash flow models anyway.......if you want more 'certain returns', go for a different issue.....

If you want a living, breathing, somewhat variable retail growth business, you may consider FLT, which last year earned about $1.50 EPS without one offs...it's best result ever

Some people argue that FLT is not the business it was last year....well, I agree...it has 9% more shops for one thing, a few nasty one off losses and an acquired US business that sunk like a stone..

Some have noticed the share price is not as high as last year.....32$ down to 6$......

Does anyone want to bet me this business will never earn above 1.50 EPS? Well, I won't take your bet....who wants a 50/50 returns when this stock will likely trade about 600% higher when it again earns about 1.50EPS.......and all the while spurning tax advantaged income.............skeptical, that's only a PE 20 for a stock which has consistently grown since listing at what, 95 cents I think.....

Discount cash flow models have their place, if only to understand the boundaries and allow one to postulate different scenarios. I think that is what ROE is doing, by saying that he sees worst-case scenario of 35c EPS and little growth, and this means a minimum price of $X. And since current price is less than $X, there is a lot of margin of safety. I totally agree with this approach, but was just having a discussion on the discount rate being applied.

As to FLT, I don't think the market will be so generous and apply a PE of 20 for a long time.

skc · 7 April 2009

Re: FLT - Flight Centre

Watch out below

https://www.aussiestockforums.com/forums/showthread.php?p=417317#post417317

Full year NPAT now $36 to $44m, or EPS 36c to 44c. Last year EPS 150c.

They are bleeding bad in the US. Not only on their normal business activities but in their investment income. Many Aussie companies have gone to the US and failed - I hope FLT won't be one of them.

wonderrman · 7 April 2009

Re: FLT - Flight Centre

skc said:
Watch out below

https://www.aussiestockforums.com/forums/showthread.php?p=417317#post417317

Full year NPAT now $36 to $44m, or EPS 36c to 44c. Last year EPS 150c.

They are bleeding bad in the US. Not only on their normal business activities but in their investment income. Many Aussie companies have gone to the US and failed - I hope FLT won't be one of them.

Yes I agree. This funnymental business regarding FLT sounds silly. A good quote comes to mind from the legendary John Maynard Keynes - "markets can remain irrational far longer than you or I can remain solvent."

I don't know why someone would add to a possition that is going down. I think I would prefer to own something that is going up. wonder.

Sean K · 16 April 2009

Re: FLT - Flight Centre

FLT seems to be pretty well tied to the recovery coming. Like any company though, in any industry, the stock price will move according to perception of future position, not current economics, or even next months economics.

While a lot of resource companys have looked bottomish to me, this one doesn't quite yet. Still a wide ranging channel heading down from the highs. Needs some sideways action from here to stabilise really. Maybe a higher low and high will make it look a bit better.

Be nice if it can skip over $6.40 ish and then use it as support. Until then, looks vulnerable.

Could be an awesome turnaround story once people start being game enough to fork out some cash on discretionary travel.

prawn_86 · 16 April 2009

Re: FLT - Flight Centre

Yeh i agree Kennas. A close above 6.40ish seems important in the overall scheme of things. I have freed up some cash and am looking to enter, however its interesting to note that PPT is now selling down according to last nights ann, so that might create downward pressure if they continue.

Watching and waiting to pounce...

Sean K · 16 April 2009

Re: FLT - Flight Centre

A chart more promising is the 6 monthly, where it looks like it's broken a short term down trend and moved sideways. The current resistance is more like a zone between 6.00 and 6.50 by the looks of this. Next positive sign might be for $5.40 ish to hold and 6.50 to break.

prawn_86 · 20 April 2009

Re: FLT - Flight Centre

Looks like this overall market rally is slowly running out of legs, and the same appears to be happening with FLT. WHile personally i would be happy entering at these prices, i might as well try and pick them up cheaper if i can.

Im with Kennas on the 5.40 - $5 downside support, and 6.50 resistance, so will just wait and see if it bounce off support. Nice to see its getting a bit of sideways consolidation, but i have a gut feel that $5 may be seen soon.

I will try and get a hold of some more store data from the person i know who works there. I know its not a representative sample, but i think it was a good insight last time

wonderrman · 20 April 2009

Re: FLT - Flight Centre

prawn_86 said:
Looks like this overall market rally is slowly running out of legs, and the same appears to be happening with FLT. WHile personally i would be happy entering at these prices, i might as well try and pick them up cheaper if i can.

I would agree. Technically I would have been out of this stock at the $6.10 lvl. The market looks like it is going to head back down again in the short term, FLT will head down to. I don't know why there is all the fuss over this stock, there are a lot more better propositions out there in the market to take advantage off.

Economically we are quite screwed and the next five years are going to be very unpredictable. I don't know how people are coming up with a "net present value" price tag and expecting it to come to fruitration. Even if you agree with your price target, I would suggest you read my signature as it is very true and very smart said by the legend John Maynard Keynes.

If you're in on the funnymentals I would say good luck, if you're in on the technicals, I'd say get out.

:2twocents

Wonder.

prawn_86 · 20 April 2009

Re: FLT - Flight Centre

wonderrman said:
I don't know why there is all the fuss over this stock, there are a lot more better propositions out there in the market to take advantage off.

If you're in on the funnymentals I would say good luck, if you're in on the technicals, I'd say get out.

Personally using a bit of both TA and FA. FA for the potential, TA for the entry.

Just out of interest what other 'blue chip' stocks do you think has more long (5+ year) potential?

freddy2 · 20 April 2009

Re: FLT - Flight Centre

wonderrman said:
.. there are a lot more better propositions out there in the market to take advantage off.

Such as?

I would suggest you read my signature as it is very true and very smart said by the legend John Maynard Keynes.

It hardly applies if you don't use leverage or otherwise put yourself in a position of being a forced seller.

wonderrman · 20 April 2009

Re: FLT - Flight Centre

prawn_86 said:
Personally using a bit of both TA and FA. FA for the potential, TA for the entry.

Yes that is good and smart. I would argue though that it's very hard to complete fundamental analysis at the moment when not one single person has any idea where the company will be in 6 months, 1 yrs, 2 yrs etc. time because of the economic environment. Who knows how good or (I bet) bad the economy will be in a years time. How can you put a price tag on something when you have no idea about how the company is doing.

I would also suggest one simple thing that would stop me buying this stock if using fundamental analysis: if the economy continues to plunge disposable income will drop even more and people would obviously not feel as happy using credit cards. The first thing to go is all the extra stuff like holiday houses, boats etc. People won't be travelling on planes and boats because they cannot afford it. This would obviously be very bad to Flight Centre. I would not buy this stock no matter what because of this if using FA. Yes it could be worth a lot more in 5 yrs, but that means I might have to wait 4 yrs before I see any capital appreciation. I'm a impatient person and could not tolerate this.

Rather then using both, if you really wanted to be in this stock I would be using techno analysis to buy in at the dips and sell out at the tops.

prawn_86 said:
Just out of interest what other 'blue chip' stocks do you think has more long (5+ year) potential?

We'll I don't really buy for the long term and my selections arn't always blue chips. I usually only hold a stock for a few months while riding the uptrend and like to buy out of a break out from a basing pattern. There are a few stocks around at the moment that look like they can do this but probably won't happen because of the general market movement.

If I could buy one stock though and have to hold it for 5 years it would be BHP. It really is a beautiful stock that has all of Australia and half of their super resting on it. It will do well in the next period of growth as long as China don't get there hands on them. It seems to always be a good buy in times likes these, it always turns out to be a good buy.

wonder :2twocents

wonderrman · 20 April 2009

Re: FLT - Flight Centre

freddy2 said:
Such as?

Refer to previous post. I use charts to time my trades so possible entries change. Obviously there is less opportunities at the moment due to the market. I would say though if I was using funnymentals to buy I would much rather be in somethng like BHP.

It hardly applies if you don't use leverage or otherwise put yourself in a position of being a forced seller.

Leverage has nothing to do with it. The quote is saying that you can buy a stock at .30 and think it is cheap, but then it can go down to .20 or .10 or .5 before it heads back up, if it does at all. This might not be rational, but the market is an irrational beast so this can happen.

prawn_86 · 20 April 2009

Re: FLT - Flight Centre

Obviously you have a different timeframe, so thats where the difference of opinions arise, its not comparing apples with apples.

On a fundamental view of FLT, even if the economy worsens i think FLT will remain profitable. I have confidence in their management team. Corporate travel accounts for a lot of their earnings, and while business' may cut back on 1st and business class, they still need their staff to travel. The fact that they are in a near monopoly position is also a huge advantage. If the economy does get to a point that you think it will (and i think its a possibility also) then other travel agents will be going broke before FLT, meaning consumers will have to use FLT more and more in that situation.

FLT are alos diversifying into pushbikes, they own the 99bikes set of stores. This may seem an interesting diversion but pushbikes outsold car 4:1 worldwide last year, so it could (hopefully) proove to be a good move.

RE irrational markets - completely agree, but when looking for an income stock its a long term proposition...

Trembling Hand · 20 April 2009

Re: FLT - Flight Centre

wonderrman said:
Leverage has nothing to do with it.

Your quote came about because Keynes blew up while leveraged although his idea was ultimately correct. So your quote has everything to do with leverage.

FLT - Flight Centre Travel Group

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