Treasure Chest | Jun 20 2023
This story features CORPORATE TRAVEL MANAGEMENT LIMITED, and other companies. For more info SHARE ANALYSIS: CTD
FNArena's Treasure Chest reports on money making ideas from stockbrokers and other experts. Today's idea relates to Corporate Travel Management.
By Mark Woodruff
Whose Idea Is It?
Analysts at Morgan Stanley.
An announcement is pending from the Federal Department of Finance prior to financial year’s end on the award of Travel Management Services following a tender process for the Whole of Australian Government (WOAG) contract.
Morgan Stanley assigns a 70% probability the incumbent, Corporate Travel Management ((CTD)), retains the contract which was picked up as part of the corporate business acquired from Helloworld Travel ((HLO)) in April last year.
Corporate Travel Management is, in the words of the broker, a provider of innovative and cost-effective travel management solutions to the corporate market. Revenue is earned via fees for service, commissions and volume incentives. Its online booking tools mean the business is highly scalable – this allows it to generate strong margins.
The high probability of a successful contract outcome is based on Morgan Stanley's feedback around performance on the existing contract, as well as associated costs for the government of switching provider.
The company will be competing against FCM, the global business travel division of Flight Centre Travel ((FLT)), the only other competitor in the space.
Should retention by Corporate Travel Management be accompanied by reiterated FY23 guidance, the broker anticipates this can potentially add around 15% to the share price.
Not only would a contract win result in greater FY24 earnings certainty, but a second half trading update may potentially show a significant rebound in client activity, particularly in Europe, North America and Asia, if Morgan Stanley’s channel checks prove accurate.
The broker recently conducted a survey of 92 corporate travel managers which revealed encouraging improvement for corporate travel budgets as detailed in https://www.fnarena.com/index.php/2023/06/16/in-brief-travel-telcos-retail-global-food-prices/
On the flipside, the analysts suggest the loss of the contract would negatively impact both earnings and sentiment, with the impact on sentiment equating to at least a mid-single digit earnings adjustment for FY24.
The company’s share price at the time of Morgan Stanley’s research was $20, suggesting two possible outcomes: a share price surge to $23, or a 30% chance of slippage to $17 (as suggested by the broker in case of a negative outcome).
In mid-April, Goldman Sachs pointed out government contracts offer downside support to earnings in an uncertain macro environment.
At the time, this broker increased its target for Corporate Travel Management by $3.00 to $22.80 following a material contract win from the UK Home Office, valued at roughly $3bn over two years with option for a one-year extension.
When discussing this UK contract win, UBS felt the trajectory in North America was improving and there had been a strong uplift in the European business.
Macquarie believes the key to upside/downside going forward is the performance in North America and Europe.
FNArena's daily monitoring consists of six brokers who actively cover Corporate Travel Management; three have a Buy (or equivalent) rating and three have Hold recommendations.
The average target price of the six brokers is $23.02, which suggests just over 17% upside to the latest share price.
Goldman Sachs and Jarden are not monitored daily. They both rate the stock a Buy with an average target price of $23.13.
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