The Flight Centre Travel Group Ltd (ASX: FLT) share price is under the spotlight after revealing a UK acquisition for $211 million.
Flight Centre is a large travel agent business in Australia and many other countries. It’s about to become even bigger overseas.
UK acquisition
It’s buying a leading UK-based luxury travel brand for a total of $211 million.
Why is Flight Centre buying the business? It provides an entry point into the UK and US luxury travel market through a “well-regarded, scalable brand” which will be supported by Flight Centre’s global platform.
The ASX travel share said that if the business had owned Scott Dunn for the full 12 months to 30 June 2023, it would add to profit/earnings per share (EPS) in the mid-teens in percentage terms.
How is Flight Centre affording this?
Not many travel businesses have $200 million of cash sitting around after the COVID pandemic.
Flight Centre is doing a capital raising. It’s doing a fully underwritten A$180 million institutional placement and A$40 million of existing cash on Flight Centre’s balance sheet, before receiving funds from a share purchase plan.
Regular investors will be able to buy shares a well, which could raise a total of A$40 million.
Management comments
The Flight Centre Managing Director Graham Turner said:
Scott Dunn provides us with the opportunity to grow our leisure presence in the large UK and US luxury markets in an attractive and growing segment, while also fast-tracking our objective of developing a global luxury collection of travel brands. High-net-worth, time poor customers highly value the services of Scott Dunn as shown by their customers’ loyalty.
Flight Centre FY23 earnings update
The ASX travel share revealed that it expects the first half of FY23 to show total transaction value (TTV) of A$9.9 billion, total revenue of $1 billion and underlying EBITDA (EBITDA explained) of $95 million.
FY23 guidance is now for $250 million to $280 million of underlying EBITDA, before the benefits of the acquisition.
This seems like a good deal for Flight Centre, considering how much it adds to EPS. With travel demand rebounding, the Flight Centre share price could be one to watch, though in the sector I prefer Webjet Limited (ASX: WEB) shares because of its online-only model.
