In 2018, Flight Centre Travel Group’s (ASX:FLT) share price was flying high and trading above $61.00. With 101.1 million shares on issue, the market capitalisation at the time was just shy of $6.2 billion.

Only two years later, and after the share price had already declined to $35, the world suffered the impact of the COVID-19 pandemic. The travel industry was hit hard by government-enforced travel bans to slow the spread. 

Flight Centre moved quickly to significantly cut overheads, shuttering stores, and reducing staff to ensure costs were lowered to sustainable levels. At the depths of the COVID-Pandemic sell-off the company’s shares had lost 85 per cent hitting lows of less than nine dollars and forcing the company to suspend trading. 

With the rapid and unprecedented shutdown of the global travel industry, Flight Centre, raised $700 million through a share placement and another $400 million through an offer of convertible notes. The following year the company raised another $400 million through another convertible note. During this period, the company also entered a $350 million three-year secured syndicated debt facility with its existing bank lenders, and the UK business issued notes under the Bank of England’s COVID-19 Corporate Financing Facility.

Today the company’s shares trade at $21.12, down 65 per cent, however, now with 200 million shares on issue thanks to all those capital raises, the market value of the company is down 32 per cent to about $4.2 billion. And if all the notes convert, in 2028 for example, the total shares on issue might approximate 230 million, putting the equivalent market cap at $4.9 billion and the market value down a more modest 20 per cent from all times high. The question is whether the results and outlook justify the price.

There’s no question Flight Centre has experienced significant volatility in its performance, reflecting both the scars of the global pandemic and its inherent resilience.

The observation to make is that the 2023 results reflect an undeniable recovery. Year-on-year growth for the company has been phenomenal. Revenue surged by 127 per cent, and the underlying profit before tax (PBT) rose by 129 per cent. Furthermore, the company’s effective cost control strategies ensured they maintained their costs at about 75 per cent of FY19 figures.

Flight Centre has also secured new business, amounting to $2.6 billion in FY23, predominantly in the corporate sector. Notably, the leisure sector’s PBT/TTV margin in 2H23 reached 1.7 per cent, beating both its pre-COVID rates and that of the corporate sector for the same half-year.

Importantly, as we roll into 2024, both the corporate and leisure sectors marked a robust start. There’s also been noticeably strong cash flow generation in the latter half of 2023. While detailed guidance for FY24 is pending, preliminary remarks are optimistic.

There are concerns of course. A softer operational cash flow conversion was reported at 62 per cent before Interest and tax, with the management indicating a shift from the historical norm of 90-100 per cent conversion.

Meanwhile, management’s description of their 2 per cent PBT margin target for FY25 as “aspirational” rather than definitive suggests investors should also be cautious, although the company has emphasised a clear strategy to achieve it.

The market valuation for Flight Centre seems undemanding. Notwithstanding the earlier comments, the shares sit at an FY25E (diluted) price to earnings (P/E) of 18 ½ times. However, according to some analysts, if the firm does meet its aspirational 2 per cent PBT margin in FY25, the P/E might be on a more attractive multiple of 12-13 times.

Across the board, analysts seem to concur on Flight Centre’s resilient performance. While acknowledging the evident cash flow concerns, they predominantly believe that the company’s strengths eclipse its weaknesses. The company has now demonstrated its ability to bounce back and organise on its COVID-inspired reorganisation. While challenges remain, especially in cash flow conversion, the broader sentiment appears positive. All considered, Flight Centre has proven its resilience and its readiness to grow again in a post-pandemic world.