Markets: Sky-high confidence

Good news for Flight Centre stock enthusiasts. The travel agency says it will not be affected by the Australian dollar’s 14 per cent fall against the US currency over the last four and a half months.

“Flight Centre does not expect the Australian dollar’s recent volatility to significantly affect its business or to fundamentally change Australian’s travel habits,” the company says in an ASX statement.

A lower Australian dollar, Flight Centre says, may boost its bottom line. The company is opening large stores in Boston, Chicago and Philadelphia as well as London, Bristol and Leeds. The US corporate market, it says, is picking up even if the Australian business travel market is ebbing.

Between December 2010 and April this year, when the dollar was trading above parity to the greenback, increasing numbers of Australians headed overseas to take advantage of the strong currency. Flight Centre’s stock responded appropriately. The stock has almost doubled since December 1, 2010. It is the fifth-best performing share on the S&P/ASX200 Index this year, up 65 per cent.

Despite the dearth in confidence about the economy and job security, Flight Centre says its sales in July and August this year are better than for the same two months last year. It is forecasting earnings growth of as much as 12 per cent in the 12 months to June 2014. In 2013 the company’s profit after tax jumped 20 per cent to $240 million as net margins rose. This helped the company boost its dividend by 28 per cent to 91 cents.

The stock, however, is looking at tad expensive. It is trading at 17.1 times earnings estimates over the next 12 months compared with the S&P/ASX200 Index which is trading at about 14 times. Flight Centre is trading at more than five times book compared to the broader market that is trading at barely two times book. Travel statistics and the company’s pronouncements on Australian travel habits in coming months will be closely watched.