Flight Centre is one of the most shorted stocks on the ASX. According to official ASIC numbers this week, 22% of Flight Centre stock was in short positions as investors bet the shares are going to fall.
The share price has suffered. In August last year Flight Centre was trading at $48.20. Today it’s at $34.07.
However, Deutsche Bank has Flight Centre on a Buy recommendation and a price target of $46 over the next 12 months.
Part of the stock’s market image problem is that investors saw outbound passenger numbers fall 0.1% in April. This makes investors believe in a declining market for Flight Centre to sell into.
However, Deutsche Bank took a deeper look at the numbers using data from Department of Infrastructure and Regional Development.
This analysis, in a note to clients, found data from March and April rolled together showed international departures growing 5.9%, a strong result and above the average of the previous six months. Apparently the official figures have been distorted this year because Easter fell in the first few days of April.
The Deutsche Bank analysis also supports Flight Centre’s commentary that USA travel remains strong because of cheaper flights and despite the weaker Australian dollar against the US dollar.
Flight Centre says its profit is expected to drop into the $355 million to $365 million range for the 2015 financial year. The forecast is only down 4.4% on the record $376.5 million profit before tax achieved in 2013-14.
The company has highlighted consultant discounting, cautious leisure consumers and competition in the corporate travel market as reasons why profit is under pressure.
Deutsche Bank notes the company’s profit downgrade and says it will be interesting to see the extent, if any, that international departures deteriorate in coming months.
“If departures growth remains strong, FLT’s (Flight Centre’s) recent downgrade would be more concerning as it implies micro level issues and a loss of market share,” Deutsche Bank says.