Small Caps | Aug 19 2022
This story features CORPORATE TRAVEL MANAGEMENT LIMITED. For more info SHARE ANALYSIS: CTD
A strong finish to the year looks to provide Corporate Travel Management with momentum as it moves into the new year, and should see the company benefit as markets reopen.
-Corporate Travel Management is expected to benefit from further recovery in the travel industry
-Demand remains strong, but airline supply constraints and cancellations are delaying recovery
-Positive momentum has carried into the first quarter of FY23
-The company is anticipating it will achieve full earnings recovery in FY24
By Danielle Austin
A continuing rebound in travel activity as global markets reopen and travel restrictions are removed should benefit Corporate Travel Management ((CTD)) moving into FY23, with the company reporting a strong finish to year that should propel it into FY23.
Corporate Travel Management reported full year revenue of $389 and adjusted earnings of $60m, while industry recovery supported a return to positive cash flow in the year, with operating cash flow of $74m a sizeable improvement on -$60m loss in the previous year.
The positive full year results also saw the company reinstate dividend payments, with a 5c per share payout announced alongside an intention to return to dividends equating to 50% of net profits in FY23.
Strong performance in the fourth quarter was a driver of the full year result, with the company reporting fourth quarter revenue recovered to 69.5% of FY19 proforma revenue, and that momentum has carried into the first quarter of FY23, with the company reporting recovery to 74.0% of FY19 proforma revenue in June.
Management has indicated demand remains strong across all markets, but ongoing airline supply constraints and flight cancellations are delaying the path to full recovery. Positively, the company appears to be benefiting from a faster recovery than the broader corporate travel market despite its capacity restraints
China key to outlook, but brokers largely positive on market share gains ahead
Brokers have highlighted Corporate Travel Management’s outlook assumes greater China will open borders by June 2023, and that supply constraints will be resolved across all markets by the same time. Revenue from the Asia region as whole remains down -8% year-on-year, and while demand in Singapore and Hong Kong appears to be increasing, China’s zero-covid policy continues to impact on the region.
The company is guiding to a full recovery by FY24, targeting proforma earnings of $265m and revenue of $810m. This would imply a business 75% larger than it is now, with the company already scaling up technology investment to drive productivity gains.
FNArena’s database brokers have updated on Corporate Travel Management following the release of the company’s full year results, with four equivalent Buy rated and two equivalent Hold ratings. Between them these brokers have an average target price of $24.22, ranging from $19.80 at the lower end to $26.80.
Macquarie (Outperform rated and with a target price of $23.30) notes ongoing and unprecedented resourcing shortfalls across the travel industry remains Corporate Travel’s biggest challenge and top priority in the coming year. The broker highlighting resourcing constraints continue to impact on service levels, and airport and airline capacities. Corporate Travel increased its headcount by 950 new employees in the last year, and have undertaken initiatives to address this shortfall through innovative recruitment, training, on-boarding and retention.
The Macquarie analysts note while the company is guiding to full earnings recover in FY24 they anticipate 91% earnings recovery. The broker updates its earnings per share forecasts -10%, -1% and 5% through to FY25.
Credit Suisse (Neutral rated and with a target price of $19.80) also expects macro headwinds to constrain the speed of Corporate Travel Management’s recovery over the next two years. With labour accounting for the majority of the company’s variable costs, the broker noted inflation looks to hamper the company’s ability to achieve earnings targets made in December 2021. The company previously outlined a $265m earnings target in a fully recovered market, but the broker warns wage inflation is cutting into potential upside to this target.
The broker decreases earnings per share forecasts -4% and -1% in FY23 and FY24 respectively, noting it sees the stock as fully priced compared to segment peers.
UBS (Buy rated and with a target price of $26.80) described Corporate Travel Management’s fourth quarter as a strong recovery, with earnings 4% ahead of consensus. The broker liked the exit run-rate trajectory, and noted it shows the company’s strong market share gains and outperformance compared to peers. While noting labour constraints remain a concern for the company, UBS anticipates the company's labour initiatives will leaveit materially better placed as airline disruptions subside.
The broker expects the company to take further client wins over the next two years, while its tech advantage should see it continue to take market share, and views Corporate Travel Management as one of the best performing travel stocks. Earnings per share forecasts increase 3%, 1% and 1% through to FY25.
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