Corporate Travel Management: Well placed when borders fully reopen

About the author:

Belinda Moore
Author name:
By Belinda Moore
Job title:
Senior Analyst
Date posted:
17 February 2021, 11:00 AM
Sectors Covered:
Agriculture, Food & Beverage, Travel and Chemicals

  • In our view, Corporate Travel Management (ASX:CTD) posted a commendable 1H21 in light of COVID-19 travel restrictions. Importantly, the balance sheet is strong with no debt and is by far the strongest in the sector.
  • CTD hasn’t wasted a crisis. When travel activity fully returns, CTD will be a materially more profitable company given it has won a lot of new business, it has the benefit of the T&T acquisition (+ associated synergies) and it has structurally lowered its cost base.
  • CTD remains our key pick in the travel sector. We maintain an Add rating with a new price target (login to view).

Challenging 1H21; balance sheet remains very strong

Due to the impact of COVID-19 travel restrictions, CTD reported 1H21 revenue of A$74.2m (inc. A$17.8m of gov. support and FX gains), down 67% on the pcp, an underlying EBITDA loss of A$15.7m (vs. A$65.5m profit the pcp) and an NPATA loss of A$26.0m.

In difficult operating conditions, the result was slightly weaker than we expected but still a credible outcome.

Key highlights for us included:

  1. ANZ achieving profitability
  2. Europe reporting a minor loss
  3. Asia’s loss being less than feared
  4. The balance sheet finishing in a stronger than expected position, with net cash of A$119m + undrawn debt facilities of A$178m as at 31 December 2020 (position largely unchanged at 15 February).

We note CTD is the only travel company within our coverage with no debt on its balance sheet.

Trading update highlights continued improvement in trading

As expected, no FY21 earnings guidance was provided.

In January, the group’s EBITDA loss (including T&T) reduced to A$2.8m/month from A$4.8m/month in Nov/Dec and we expect the group should approach close to breakeven levels in February. Recent significant client wins are expected to support an acceleration in its 2H21 revenue recovery.

Divisionally:

  1. ANZ is expected to deliver an increased 2H21 EBITDA result (vs. 1H21)
  2. Europe is forecast to be profitable from Feb (Jan was breakeven)
  3. Asia is expected to remain challenging (no material change expected in the 2H)
  4. The extent of the US recovery is expected to be dependent on the success of the vaccine rollout.

CTD reiterated it can return to group profitability on domestic activity alone, with 60% of pre COVID-19 transactions for domestic travel.

T&T integration is tracking well

CTD acquired T&T on 30 October 2021 and the integration is well on track. CTD has already achieved its synergy target of US$18m, with the benefits expected to materialise once activity returns to CY19 levels.

Pleasingly, additional cost savings are expected to be realised from IT and Finance rationalisation in FY22. When travel demand recovers post COVID-19, CTD should achieve its A$10bn TTV target with the addition of T&T. It will also become the fifth largest corporate travel company in the world.

Forecast changes

Given the size of the 1H21 loss and based on CTD’s outlook commentary, we have lowered our FY21 forecast. We now assume that CTD achieves a very modest profit in the 2H21.

The revisions to our FY22 forecasts reflect more conservative assumptions on international travel in FY22 given restrictions are likely to remain until the start of 2022 and a higher AUD.

Consistent with our modelling of CTD, we assume that T&T earnings normalise to FY19 levels in FY23. We also assume the full amount of targeted synergies (US$18m) is achieved by FY23 and increase to US$25.5m in FY24.

Investment view – Add rating and new price target

Following appreciation of peer multiples and increasing our longer-term forecasts, our blended valuation has risen from A$20.50 (login to view). CTD remains our key pick of the travel sector given its strong balance sheet, ability to generate high levels of profitability from domestic travel alone and additional earnings upside T&T provides.

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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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