Sun Shines On Corporate Travel

This story features CORPORATE TRAVEL MANAGEMENT LIMITED. For more info SHARE ANALYSIS: CTD

-Winning market share
-Consolidation opportunities
-Mining sector the weak link
 

By Eva Brocklehurst

Corporate Travel Management ((CTD)) is in a sweet spot, substantially expanding its offshore platform to deliver growth that was above expectations in FY15. Having built a global network the business is now poised to win larger clients.

The company's results illustrate success in wining market share from both global travel management companies and boutique operators, Macquarie observes. The broker expects the business to benefit from favourable currency moves and exposure to an eventual recovery in the global economy.

For Macquarie, the main issue is valuation rather than the outlook. In that regard the broker retains a Neutral rating with an $11.77 target, with the majority of the growth outlook considered to be captured in the share price. Nevertheless, with the significant market that is available globally, the company's growth outlook is one of the strongest in the broker's emerging leaders portfolio.

Guidance for FY16 signals earnings growth of 25-30%, taking into account conservative currency assumptions and the annualised contribution of Chambers Travel as well as the full year contribution of Avia International and Diplomat Travel. More than 52% of earnings came from offshore in FY15 and organic growth contributed more than half.

Morgans forecasts earnings growth of 30% in FY16 and also believes the company is positioned to benefit from consolidation in large global corporate travel markets as well as win regional and global travel accounts. Retention of existing clients remains strong.

There is also an opportunity to cross-sell to clients between different regions. In this regard the broker highlights the joint venture with World99, an outbound travel agent in China. This JV will have the distribution rights for Corporate Travel's products outside China. The work is high volume but lower margin.

Over time, Morgans believes there is an opportunity to build on this venture within other geographies. On another positive, the JV requires minimal capital investment as it leverages the company's existing technology. Morgans' Add rating is reiterated, with a $13.20 target.

Ord Minnett envisages scale benefits will enable revenue margins and earnings to grow rapidly. The company is still a small operator in the Asian, North American and European corporate travel markets but the broker is more confident in the earnings base since the results and upgrades to Buy from Hold, setting a target of $10.67.

Despite the tough operating conditions in Australasia the company has improved market share to 12%, which signals to Bell Potter that Corporate Travel is outperforming its peers. Profit growth in this region is expected to slow to single digits, given the weakening mining sector. Management expects Australia will reveal a flat first half with growth returning in the second half.

Still, with integration of the North American businesses largely complete and Asia and Europe performing above expectations, Bell Potter believes the strong track record that is being established will continue to underpin the stock in FY16. The broker has a Buy rating and $13.25 target.
 

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