Corporate Travel Management: Look forward, not backwards

About the author:

Belinda Moore
Author name:
By Belinda Moore
Job title:
Senior Analyst
Date posted:
17 February 2022, 11:45 AM
Sectors Covered:
Agriculture, Food & Beverage, Travel and Chemicals

  • Corporate Travel Management’s (ASX:CTD) 1H22 result was in line with our forecast but was below consensus. Importantly the company generated positive EBITDA, strong cashflow conversion and has a strong balance sheet (no debt).
  • While January trading was impacted by the Omicron variant, pleasingly, activity is now improving and CTD expects a strong 4Q22. Our EBITDA forecasts are unchanged however NPAT is up slightly.
  • CTD remains our key pick of the travel sector. We reiterate our Add rating with a new (login to view) price target.

1H22 was in line with our forecast but below consensus given Omicron

CTD reported 1H22 TTV of A$2.08bn, revenue of A$163.0m, up 119.6% on the pcp, underlying EBITDA of A$18.2m (beat MorgansF of A$18.0m but below consensus of A$22.0m) and a NPATA loss of A$0.4m (beat MorganF of -A$2.2m).

Europe result and strong CF/balance sheet were the highlights

Despite the strong improvement vs the pcp, the 1H22 was impacted by both the Delta and Omicron variants. When trading slows, CTD’s margins get squeezed given it has rehired staff in anticipation of the recovery (extra A$2m of costs per month). There is also now limited government support (A$2.4m 1H22 benefit). 

Europe and North America lead the recovery. Europe’s result was impressive with a record 1H result (A$20.9m) and a 48.4% EBITDA margin. ANZ had travel restrictions for most of the 1H, while international travel in Asia was minimal. 

CTD generated strong operating cashflow (A$38.1m, albeit there was a A$20m timing benefit). As at 31 December 2021, CTD had net shareholder’s cash of A$186.8m (no debt).

Omicron impacted January but recovery is taking shape; expect strong 4Q22

As expected, no formal FY22 guidance was provided. FY22 earnings will be materially skewed to the 2H. As we expected, the Omicron variant impacted trading in January. Importantly, in February, the UK and North America are experiencing a rapid rebound as restrictions have been lifted (UK has now removed COVID testing and other countries are expected to follow shortly).

Australian domestic travel is also now recovering strongly. CTD therefore expects group EBITDA to build during February and March, setting up for a strong 4Q22 and FY23. 

Following two highly accretive acquisitions (T&T and HLO Corporate) and after achieving the full synergies benefits, based on a full recovery from COVID, CTD reiterated that it is capable of generating EBITDA of A$265m (FY19 EBITDA was A$150.1m).

We see additional upside to this based on strong market share wins during COVID, further synergy benefits, structural cost savings and automation benefits from its technology. We therefore believe CTD is capable of generating A$280m of EBITDA.

The integration of T&T has gone well and is ahead of expectations. CTD’s move to a single client system will be completed in June 2022 and is expected to create material efficiency benefits (beyond expectations) and evident from 1Q23.

Specifically, it will improve productivity and allow agents to focus on providing greater value for clients, as well as unlocking further automation in proprietary agent tools. Assuming a full recovery, CTD now expects that it will only require about 80% of its pre-COVID number of employees (20% productivity benefit).

Forecast implications

Given we recently made material revisions to our forecasts for Omicron, we have left our EBITDA forecasts unchanged. NPAT has risen due to lower interest and higher minorities.

We continue to assume that earnings fully recover in FY24.

Investment view

CTD remains our key pick of the travel sector. While the Omicron variant has impacted short-term travel demand and pushed out the earnings recovery, the T&T and Helloworld acquisitions and its recent British Government contract win, mean that CTD is well positioned to be a materially larger business post COVID.

Importantly, its balance sheet remains strong and has no debt.

Share price catalysts include corporate travel demand rebounds, new material contract wins and further accretive acquisitions. The risk to our view is if new COVID-19 variants continue to emerge, further delaying the travel recovery.

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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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