Corporate Travel In A Sweet Spot

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

-Cash conversion a highlight
-More offshore acquisitions likely
-Strong interim dividend growth
 

By Eva Brocklehurst

Corporate Travel ((CTD)) hit a sweet spot for most brokers in the first half, enjoying increased market share, acquisitions, improving demand and the benefits of a falling Australian dollar.

The company now has a presence in all key corporate travel markets globally, and an opportunity to cross-sell between the different regions.

Having built up its network with the acquisition of UK-based Chambers Travel, the business is now primed for growth by winning large, global tenders. Along with this comes improved margins and buying power, Ord Minnett observes.

The broker expects 15-20% growth ahead is possible. FY16 earnings guidance was maintained at $68m and organic growth through new client activity remains the dominant driver of the uplift. A full year of acquisitions, such Chambers, should underpin that upside, Ord Minnett asserts.

Cash conversion was the highlight for Morgan Stanley, with 100% conversion lining up for the second half. One-off factors that impinged in the prior half year were unwound. The broker's forecasts for the full year edge up but so does its capex numbers, which implies little change to estimates.

Australia and the US were softer in terms of low single digit transaction growth, while Asia and Europe surprised Morgan Stanley on the upside. The broker likes the proven domestic model and growing international track record, retaining an Overweight rating.

Moreover, the company's model is light on capital needs and highly scalable within a large fragmented market. Corporate travel is the segment which is least susceptible to online challenges yet has the strongest growth profile, the broker observes.

Morgan Stanley does not forecast future acquisitions in its base case but considers earnings-accretive catalysts such as acquisitions could still be a source of upside. The broker's rounded valuation implies increased scale, organic growth, balance sheet strength and the company's specific guidance.

Revenue was a little variable across the regions, Macquarie maintains. Australasia was flat and exposure to oil & gas and mining dragged on the result, which resulted in a flat comparable total transaction value. North America was in line with expectations at the revenue level while Asia was a highlight, with revenue up 33%. UK and Europe were in line with Macquarie's estimates.

The broker likes the economies of scale that are developing over a fixed cost base, which allows the company to compete on global contracts. Acquisitions are expected to be sought in the second half as management intends to diversify further outside of Australasia. Nevertheless, for Macquarie, the main issue is one of valuation rather than the outlook or execution. In that regard, Macquarie retains a Neutral rating.

The positives line up for Morgans, as well as the higher-than-expected interim dividend, up 50% to a fully-franked interim of 9c a share. Record margins in Asia and Australia provide confidence in the upside that is potentially available in North America and Europe as the company gains scale.

The company emphasised that a decline in activity from its oil & gas clientele has been built into earnings guidance. In that sense, the company remains highly leveraged to an economic recovery, Morgans believes.

Moreover, the broker notes the company is also intent on leveraging a technological advantage into new market segments and argues that a company of this quality and growth profile should be trading on much better metrics. Morgans reiterates an Add rating.

FNArena's database shows three Buy ratings, and one Hold (Macquarie). The consensus target is $13.84, suggesting 9.6% upside to the last share price. Targets range from $12.59 (Macquarie) to $14.80 (Morgans).
 

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