Corporate Travel Management' financial update for FY23

With reporting season about to begin and confession season well-underway, analysts are keen to understand the extent to which any pullback in consumer activity has, for example, impacted business.

Thus far, earnings momentum has tilted negatively. Over the last few months as many as a third of all companies covered by investment bank UBS have seen consensus estimates for FY24 earnings per share revised lower by greater than five per cent. From the same sample set, only 13 per cent have been revised upwards by more than five per cent. Clearly, earnings are skewed negatively.

Share prices have also taken a tumble with price to earnings (P/E) ratios compressing by more than 10 per cent for 29 per cent of UBS-covered stocks. About 21 per cent of the UBS stock universe have recorded P/E expansion of more than 10 per cent in the last four months. Companies enjoying positive earnings revisions for FY24 of more than five per cent include stocks held by the Montgomery Small Companies Fund, such as Corporate Travel Management (ASX:CTD) and Megaport (ASX:MP1).

Negative earnings revisions of over five per cent include stocks such as Select Harvests (ASX:SHV), IDP Education (ASX:IEL) and Kogan (ASX:KGN).

Companies that experienced P/E expansion of more than 10 per cent over the last four months include MP1, Temple and Webster (ASX:TPW), Invocare (ASX:IVC), and KGN. Companies experiencing P/E compression of more than ten per cent include Tyro Payments (ASX:TYR), Adairs (ASX:ADH), and Elders (ASX:ELD).

One sector that is believed to have benefitted from so-called revenge-spending is thought to be travel. Both business and leisure travel have increased despite the high prices being charged by Qantas (ASX:QAN), for example, amid a dearth of capacity, and a rejection by the Labor government of applications by foreign carriers to alleviate the issue for Australian consumers. The latter ensures Qantas can continue to rip-off passengers despite receiving $2.7 billion from the previous government in Covid-related support. Stepping off my soap box now…

Corporate Travel Management’s financial update for FY23 has just been released and the company disclosed its FY23 underlying earnings before interest, taxes, depreciation, and amortization (EBITDA) would be between $165-170 million (narrowed from the previous guidance range of $160-$180 million) with the mid-point slightly ahead of consensus which was already at the lower end at $165 million. The forecast suggests CTD expects to generate EBITDA of $114-119 million in the second half of FY23, which indicates strong momentum into FY24 after a softer 1H23 result.

The business update implies that the fourth quarter of FY23 ended strongly for the Corporate Travel Management company, with revenues recovering to more than 90 per cent of pro-forma FY19 levels. The recovery in corporate travel sector revenues has lagged the recovery in leisure due to high ticket prices impacting travel budgets as well as travel delays and disruptions caused by strong leisure demand and tight labour markets.

Across the regions, Europe has been a standout performer in FY23 for the company, with CTD’s FY23 guidance implying EBITDA more than double pro-forma FY19 earnings.

After a slow start while China remained locked down, Asia’s reopening outperformed expectations in 2H23 with EBITDA from the region breaking records since March and exceeding FY19.

North America’s recovery stalled in the first half of 2023 as corporate customers deferred travel plans due to widespread industry delays and disruptions. Encouragingly, since March Corporate Travel Management’s revenue has averaged over 80 per cent of pro-forma FY19 levels.

Australia and New Zealand was light on detail, suggesting a softer than expected operating performance in 2H23 which likely reflects high international ticket prices and a tough macro backdrop. The good news was that Corporate Travel Management retained its Australia Government contract for four more years plus options.

FY23 was a strong year for new client wins with CTD securing $2.95 billion worth of new work, the majority of which will transact in FY24.

Looking ahead, CTD plans to disclose FY24 earnings guidance at its FY23 result scheduled for 23 August 2023. Current FY24 EBITDA consensus is around $260 million which looks to have de-risked somewhat following the better than feared 2H23 update and taking into account normal seasonality and the positive impact of the UK Bridging Accommodation and Travel Services contract (worth approximately £800 million per annum from 1 June 2023). Although the uncertain macro outlook remains a risk, the stock is trading on 10x FY24 EBITDA which is well below historic levels and offers some downside protection. Corporate Travel Management has grown to become a global leading corporate travel management service provider based on its strong technology offering which delivers clients material operating efficiencies and cost savings while its relatively small market share provides plenty of scope for further market share gains. 

The Montgomery Small Companies Fund own shares in Corporate Travel Management and Megaport. The Montgomery Funds own shares in IDP Education. This article was prepared 27 July 2023 with the information we have today, and our view may change. It does not constitute formal advice or professional investment advice. If you wish to trade these companies you should seek financial advice.


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