Corporate Travel Management
About the author:
- Author name:
- By Belinda Moore
- Job title:
- Senior Analyst
- Date posted:
- 21 December 2015, 12:12 PM
- Sectors Covered:
- Agriculture, Food & Beverage, Travel and Chemicals
Key points
- Corporate Travel Management (CTD) has announced its sixth acquisition in the US with Montrose Travel. The acquisition provides CTD with the scale to leverage its buying power.
- CTD has also upgraded its FY16 EBITDA guidance (expected to grow by an impressive 38.5% in FY16).
Gaining scale and rounding out the US
Montrose Travel is a family owned travel management company in California, one of the higher value corporate travel markets in the US. The business has a long and successful history, and has six operating divisions - Loyalty Rewards, Vacation Travel, Romantic Travel, Business Travel, Group Travel and Independent Contractors.
Following this acquisition, CTD's business will span over 19 cities in the US and it will be one of the top 12 players in the US corporate travel market. On an annualised basis, CTD's combined North American Total Transaction Value (TTV) will be greater than US$750m or A$1bn. Notably, Montrose Travel has a great loyalty rewards program which CTD hopes to expand across the US and globally to enhance its value proposition to clients.
Highly EPS accretive
Base consideration for Montrose Travel is approximately US$34.3m or A$47.6m, which represents an attractive 6x EBITDA. Consideration is a mixture of cash, USD nominated debt and CTD scrip to the founders (20%). To incentivise Montrose Travel to beat its targets, there is an additional earn-out.
The transaction will be completed on 1 January 2016 and is forecast to be earnings accretive in FY16. Based on our modelling the acquisition is:
- 5.4% EPS accretive in FY16;
- 8.0% EPS accretive in FY17; and
- 8.1% EPS accretive in FY18.
We expect CTD to make further acquisitions in the US during the 2H16.
Investment view
A sizeable acquisition and earnings upgrade were the catalysts required to re-rate the stock, and we view the Montrose Travel acquisition positively. We expect that the next update from CTD will be a strong 1H16 result in February. We retain our Add recommendation and upgrade our share price target.
More information
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Disclaimer(s): Analyst owns shares.
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