Mondays. The start of the week can mean so much. While it is back to work for some, for the market it is fresh hope. The kind of hope that you will be questioning Tuesday when your portfolio is looking super red and depressing. For me it’s a fresh start, you either have the momentum from the previous week, or the chance to start fresh. The market rallied hard last week and some of our previously called out value stocks benefited from the turnaround. Last week we introduced the series of articles on the TPP, and the benefits that it can bring Australian listed companies.
A company we spoke about earlier this month, Flight Centre (Unfortunately, we could not get stock quote ASX:FLT this time.) will be putting of the tray table and fastening their seatbelts in anticipation. While that may over sell the excitement a little, it is understood that the Australian services sector is really expected to benefit.
As mentioned in that article these guys are looking to take the technology overseas. With current focus on the UK and TPP giant USA this trade deal could see a greater focus on USA’s northern neighbour and our Asian neighbours. The 11 countries which make up the TPP contribute 24% of the world’s total trade in services. Better still Australia’s services trade with these countries is worth in excess of $20bn.
More specifically to Flight Centre they stand to gain from guaranteed access to countries including the exotic Peru and Chile, the less exotic but equally attractive Canada as well as Brunei Darussalam, Japan and Mexico. It is expected that the increased trade and investment will see greater travel putting demand on travel booking services like those offered by Flight Centre.
The other side to the deal is the improved investment conditions. Flight Centre will have greater opportunity to buy assets and businesses in TPP member countries to accelerate global growth. Canada for example is offering Australian businesses the chance to apply for an exemption to the 49% asset limitation currently placed on foreign investors.
The returns here are already pretty good. This year ASX:FLT has recorded returns of 5.97% and 5.23%, while the previous 12 months saw 4.68% and 4.29%. FLT has a long record of dividends dating back to their listing date in 1997 and show how a company can evolve and adapt to the current market conditions.
With broad market exposure through their 30 brands, expected increase in demand for their services and the opportunity to accelerate global expansion these guys remain firmly towards the top of my watch list. The key risk here is going to be currency volatility and of course operators like Airbnb who are attempting to get consumers to circumvent the travel agency process.