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Corporate Travel Management Targets 25% Growth; Is it Too Late to Buy?

Corporate Travel Management Targets 25% Growth; Is it Too Late to Buy?
Aug 26, 2015

Travel solution provider Corporate Travel Management (ASX:CTD) posted a 75% jump in underlying NPAT for FY15. Revenue increased 79% to $197.9m and underlying EBITDA jumped 70% to $49.1m.

Strong growth was widely expected by the market given the significant share price appreciation in the past few years, hence in investors were waiting for CTD’s FY16 guidance. The company eyes 25-30% growth in underlying EBITDA, targeting earnings of $61.3-$63.8m.

CTD’s Managing Director Jamie Pherous said: “We have delivered a significant increase in top-line growth despite challenges in the global economy. Each region in our network delivered record profits, demonstrating our business model and strategic investment decision are working for our clients and investors.” He furthermore states that the strong EBITDA growth on the previous year is due to “growing market share” in the domestic market and the “integration of international acquisitions.”

North America experienced a 107.9% increase in revenue to $47.6m as well as 17.3% organic profit growth. In Asia underlying EBITDA increased 200% making Asia the biggest growth region in CTD’s global network.

The board has declared a fully franked final dividend of 10 cents per share bringing the full year distribution to 16 cents.

Why is the share price not being affected?

Share price movements after the release of either half-year or full-year results do not necessarily have anything to do with the net result of the company. Any share price appreciation or depreciation is a result of actual results versus expectations.
CTD has risen ~48% in the past 12 months and 6.5% year-to-date. Based on CTD’s earnings per share (EPS) of 27.9 cents and a share price of $10.50, the price to earnings ratio (P/E) is ~37, which compares to a market average of around 15. A high P/E ratio does not conclusively mean that the stock is overvalued, but it basically means that investors are willing to pay a premium to the current ‘fair value’ as high earnings growth is expected.

The FY15 full year results with 70%+ growth in various areas are impressive, but the market has basically expected such growth. The profit guidance for FY16 with 25-30% appears realistic, but it might be slightly below market expectations given CTD’s high valuation. We believe that Corporate Travel Management is a great, fast-growing business with a prosperous future, however we don’t expect much upside in the medium-term due to its high valuation and overall subdued trading conditions. Investors who already own CTD should feel confident to hold it in the years to come, but we don’t consider purchasing the equity right now.


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