Ready, Fire, Aim
Flight Centre (ASX: FLT) released its December 2013 half-year results on the morning of Wednesday 26 February 2014. In the hours after the release, the company’s share price declined by 3.5 per cent. From this level, the price then rallied 7 per cent to finish the day at $51.39. What happened?
Flight Centre was one of the most anticipated releases this reporting season. The company was guiding for 8 to 12 per cent pre-tax profit growth for the full year, and we were expecting the half-year results would materially beat this guidance due to a number of factors – domestic departures grew by 8 per cent in 2013, the company had made meaningful progress with both its IT system and rent negotiations, and management affirmed that performance was not tied to the falling Australian dollar.
Flight Centre reported underlying profit before tax (PBT) growth of 13 per cent for the December 2013 half-year. On first impressions, it seemed like a solid result, but it was not of the magnitude that we, nor the market, expected. Taking the numbers at face value, the market sent the share price 3.5 per cent lower in the hours after the release.
Yet those that dug into the report would have noticed a net foreign exchange loss of $11.7 million. Foreign exchange fluctuations are typically considered temporary in nature and may be excluded from the company’s “normalised earnings”. When this foreign exchange loss is removed, the profit before tax growth increases from $146.3m to $158m. This is 22 per cent growth in normalised earnings, rather than the 13 per cent reported, and far exceeded our expectations.
Five days after releasing the first half results, Flight Centre released supplementary information that addressed the foreign exchange losses. The company announced that 30 per cent of payments to overseas suppliers were unhedged during the period, and confirmed that these payments were now fully hedged. The share price is up a further $3.00 to $54.40.
The key takeaway here is to not take the reported numbers at face value. The volatile Mr Market is prone to shooting first and asking questions later, and disciplined investors can take advantage of this “Ready, Fire, Aim” attitude.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
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Matt
:
Thanks Roger great insights as always.
And with deloitte tagging Tourism as one of the five super growth sectors it might not be the last time Flight Cent releases such good figures
Roger Montgomery
:
Thanks Matt for adding to the evidence!
zoran arnautovic
:
On the other hand, I wish I “shot” at Montgomery Pvt and Montgomery Fund some 40% ago.
Instead I was aiming here there and everywhere.
After so many comments on MMS sudden silence is quiet loud, Ben?
Cheers