But
having proved that the offers by Pacific Equity Partners seriously
undervalued the company - by $12 a share no less - the market may be
coming to the view that there may not be much left in the stock.
Not
that there is anything fundamentally wrong with the company. After all,
as successive and constant profit upgrades have shown over the past 10
months or so, this is a business which has truly put its 2005-06 annus
horribilis behind it.
However, as Goldman Sachs JB Were
pointed out in a note to clients yesterday, there's only so much
improvement you can wring out of a business from higher service fees,
taking a tougher stand with the airlines for which you supply
passengers and a continual clampdown on costs.
There's also a
limit as to how much growth will come from putting more bums on
aircraft seats, particularly when much of that expansion is coming from
low-cost airlines whose raison d'etre is to bypass agents like Flight
Centre.
In particular, Goldies is concerned that the company
will find it harder to sustain its current margins while its
medium-term growth is likely to be driven more by buying competitors at
home and abroad rather than extracting revenue and costs from its
existing business.
"We believe the current multiple [of 15
times earnings] takes too sanguine a view of this uncertainty,"
analysts Paul Ryan and Alicia Chew said in justifying cutting their
recommendation from "hold" to "sell".
They've put a 12-month
price target of $24.84 on the shares which, while a significant drop on
the current price, is still a valuation that proves why investors were
right to reject PEP.
Marriage season
Property players will need a strong ticker in 2008, with the experts
predicting the year could be a repeat of four years ago: mergers and
acquisitions galore.
The
theory is that with the US property sector looking shaky and Britain's
coming to an abrupt halt, our cashed-up listed property trusts will
start to eye off each other - To read the full article click on the link below
SOURCE | BUsinessSMH.com.au
http://business.smh.com.au/flight-centre-on-thin-air/
20071206-1fhd.html?page=fullpage#contentSwap2
