Corporate Travel Eyes Strong Growth Rebound

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Corporate Travel Management’s interim performance proved better-than-expected and expectations are growing for growth to resume in FY26.

-Corporate Travel Management’s Interim earnings beat consensus
-Rising margins in key regions, FY26 outlook improves
-Multiple tailwinds, including automation/AI
-Morgan Stanley sees an inflexion point

By Mark Woodruff

First half earnings for global provider of travel solutions Corporate Travel Management ((CTD)) beat market consensus and management’s guidance. The A&NZ region and North America were standouts along with around $600m in new client wins.

Delivering cost-effective travel management solutions to the corporate market, Corporate Travel earns revenue via fees for service, commissions, and volume incentives. The use of online booking tools such as SleepSpace in Australia and Lightning in North America means the business is highly scalable, providing potential for strong margins.

Reporting divisions are Australia and New Zealand (A&NZ), North America, Asia, Europe, and Other, the latter referring to the group’s support service, created to assist the operating segments and growth of the global business.

Management re-iterated its short-term guidance of approximately 10% revenue growth, alongside a return to a group earnings (EBITDA) margin of around 30% by FY26. This improvement is expected to be driven by increased scale, ongoing automation and productivity initiatives, and a positive trajectory in the European Union.

A material reduction in capital expenditure was also flagged, boosting free cash flow (FCF) forecasts.

Morgan Stanley cites multiple current tailwinds for Corporate Travel including improving activity levels, supplier incentives, vertical integration, and globalisation of corporate functions.

As per recent commentary by Flight Centre ((FLT)), further automation/AI adoption could drive customer costs down and profitability up. The analysts note five basic functions (such as sending/updating itinerary, flight change) account for 35% of transactions.

Morgan Stanley believes the strength seen in US and A&NZ trading during the first half could mark an inflection point for the company, following a period of re-setting expectations after challenges related to covid.

Setbacks since then have included a significant earnings re-basing due to UK government exposure, a stop-start recovery in the US, Asian market headwinds, and integration challenges in the A&NZ region.

By contrast, Ord Minnett argues management’s response to these setbacks by reducing costs and lowering capex levels only provides a short-term sugar hit to near-term earnings, and this broker remains unconvinced in the long-term investment thesis.

Also, lurking in the background are a raft of innovative global, technology-centric competitors such as Navan, BCD Travel, and TravelPerk, highlights Ord Minnett, while larger players like American Express Global Business Travel with scale could also target Corporate Travel’s key clients.

Given these threats, Ord Minnett is puzzled as to why management is moderating capex.

It’s worth noting the negative commentary from Ord Minnett is an outlier when compared to the more positive views from peers.

Interim results

Underlying earnings of $77m for the half beat the consensus estimate by 4% and exceeded management guidance for around $74m.

While overall FY25 earnings guidance was downgraded to $197m from $210m due to the previously flagged reduction in the UK Government’s travel spend, Morgans finds the FY26 outlook is improving with management providing underlying earnings guidance of $240m, a 6% beat against the consensus expectation, and implying 22% year-on-year growth.

Wilsons was particularly impressed by 86% conversion of incremental revenue to earnings in the rest of the world (ROW) division ex EU. For FY25, management’s ROW guidance was re-affirmed though European earnings guidance was lowered to $55m from $68m.

Tracking ahead of the company’s $1bn target for FY25, net booking value (NBW) at the time of management’s earning call with broking analysts was sitting at $930m.

Client retention of 97% also helps set up FY26 for revenue growth, suggests Morgan Stanley.

Macquarie expects ongoing capital management via dividends and buybacks is more likely than large scale M&A.

Management noted around 33% of the $100m buyback program has been completed.

An interim dividend of ten cents was declared.

Divisional performance

For the A&NZ region, revenue and underlying earnings rose by 18% and 53%, respectively, compared to the previous corresponding period.

Shaw and Partners attributes this performance to Atlas program automation gains, the Sleep Space rollout, new client wins and returning clients.

Revenue growth for Corporate Travel exceeded the broader corporate market growth rates of around mid-single digits, notes Citi, with a significant contribution from an approximate 50% increase in overrides. Overrides are additional commissions or incentives paid by suppliers once certain sales thresholds are achieved.

In North America, revenue and underlying earnings rose by 6% and 49%, positively impacted by Atlas, automation, on-line penetration, and the Lightning online booking tool (OBT) uptake, highlights Shaw.

Margins

Both the A&NZ region and North America experienced underlying earnings margin growth of 675bps and 545bps, respectively, from rising NBW, and positive impacts from SleepSpace and Project Atlas (cost reductions), explains Macquarie.

Management expects further margin expansion in FY26.

While margins deteriorated in Europe, Macquarie predicts the first half will represent the nadir for earnings in the region.

Also, cost reductions via Project Atlas should improve the scalability of the business and improve longer-term growth prospects, while high-margin volume-based incentive revenues grew well ahead of volumes in the first half, suggesting to Morgan Stanley meaningful tailwinds on supplier terms.

Outlook

Given strong client wins and demonstrated operating leverage, UBS modeling is now incorporating a smaller valuation discount through PE multiples. 

On this subject, Canaccord Genuity believes the majority of share price performance over the next 12 months will come from an improved multiple investors are prepared to pay.

Morgans raises its rating to Add from Hold on greater conviction in Corporate Travel’s growth outlook.

This broker likes the strong earnings growth on offer, an improving return on earnings (ROE), a very strong balance sheet (no debt), and an attractive valuation relative to the company’s growth profile.

If management continues to surprise positively with no major change to strategy, Jarden expects consensus to move closer to the company’s medium-term EPS aspirations (a doubling from FY24-29), which implies a valuation of around $20.00.

Seven brokers monitored daily by FNArena researching Corporate Travel Management are divikded over four Buys and three Hold ratings.

Following interim results, the average target price of the seven brokers increased to $17.63 from $14.20, suggesting nearly 13% upside to the closing price of $15.64 on March 6.

Outside of daily coverage, Canaccord Genuity has a Buy rating, Jarden is Overweight (a notch below Buy in its rating system), and Wilsons is at Market Weight with an average target price of $17.46.

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