Corporate Travel Management: In a class of its own

About the author:

Belinda Moore
Author name:
By Belinda Moore
Job title:
Senior Analyst
Date posted:
19 August 2021, 8:30 AM
Sectors Covered:
Agriculture, Food & Beverage, Travel and Chemicals

  • Corporate Travel Management's (ASX:CTD) FY21 result beat expectations lead by a strong 4Q recovery, particularly from its two largest regions being North America and Europe. CTD is likely the only company in the sector to be EBITDA positive in the 2H and have no debt, highlighting its greater exposure to essential services customers, domestic travel, US/Europe (>70% of EBITDA), large pipeline of new client wins and low cost base.
  • Importantly, FY22 is off to a solid start despite ANZ border closures. Reflecting the Board’s confidence in the company’s outlook and balance sheet strength, CTD intends to return to paying dividends in CY22.
  • In a post COVID world, CTD is well positioned to be a significantly larger business with materially higher EPS as a result of strategic acquisitions, organic growth and permanent cost reductions.
  • CTD remains our key pick of the travel sector. We reiterate our Add rating with a new price target of (login to view).  

Event: FY21 result beats our forecast

Due to the impact of COVID travel restrictions, CTD reported FY21 revenue of A$174m, down 45% on the pcp, an underlying EBITDA loss of A$7.2m (beat MorgansF of -A$14.3m) and an NPATA loss of A$32.3m.

Analysis: 2H is EBITDA positive; CTD has no debt and plenty of liquidity

CTD returned to being EBITDA positive in the 2H21, despite Australia going backwards from the end of May due to COVID restrictions.

The 4Q21 EBITDA turnaround from the 3Q21 was an impressive A$19.1m. 4Q EBITDA in Europe was A$9.7m and in North America it was A$5.1m. Europe 4Q21 revenue recovered to 62% of pre-COVID levels and its EBITDA margin was the highest on record.

In all of its geographies, CTD is growing in excess of the market which demonstrates market share gains.

As at 30 June 2021, CTD had net shareholder’s cash of A$92.8m (no debt).

Outlook: Well-placed given its domestic travel and UK/EU/US exposure

As expected, no formal FY22 guidance was provided. FY22 earnings will be materially skewed to the 2H. CTD intends to return to paying dividends in CY22. 

Pleasingly, July revenue was the highest since COVID despite ANZ border closures and the northern hemisphere summer holiday period. CTD expects Europe and North America to lead its growth in FY22 (>70% of proforma EBITDA).

July revenue in North America was >60% of proforma domestic CY19. This was much stronger than the market at ~40%. Since reopening in June, UK domestic travel has recovered strongly.

Most industry participants expect September and October to be stronger trading months with both American and European workers returning to the office after the summer holiday period. CTD expects that the highly profitable Transatlantic route will reopen during the 1H22.

Based on a full recovery, CTD believes that the business is capable of generating EBITDA of A$235m (includes T&T and synergies). CTD’s FY19 EBITDA (pre T&T acquisition) was A$150m. We see additional upside to CTD’s target based on strong market share wins since CY19, further synergy benefits, structural cost savings and there will be more automation benefits from its technology.

CTD’s acquisition pipeline is full, however it will remain highly disciplined.

We revise our FY22 forecast for ANZ/Asia; no material change to FY23/FY24

The earnings revisions to our FY22 forecasts (EBITDA is 14% lower) reflect more conservative assumptions with ANZ and Asia given rising COVID cases and border restrictions.

Our FY23 and FY24 forecasts are largely unchanged.

Investment view: Add rating

Post applying high multiples, our valuation has risen to (login to view). CTD remains our key pick of the travel sector.

From here, key share price catalysts are Australian domestic and international borders reopen, Transatlantic travel resumes and CTD makes a highly accretive acquisition.

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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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