1H18 beats with 32% underlying EBITDA growth
In less than perfect conditions, Corporate Travel Management (CTD) has delivered a strong 1H18 result, which exceeded our forecasts. Underlying EBITDA rose 32% (or 35% in constant currency), which was a credible outcome considering CTD had to contend with lower Asian ticket prices, adverse FX, subdued US client activity and US$2m impact from the hurricane. 51% of underlying EBITDA growth was by organic means.
The strong performance in ANZ and Europe were the highlights of the result, with EBITDA up 20% in ANZ and 238% in Europe. ANZ and Europe benefitted from strong client activity, further market share gains and a full six month contribution from the Andrew Jones Travel (A$0.5m incremental benefit) and Redfern Travel acquisitions (A$6.2m contribution, completed 1 February 2017).
Cashflow conversion fell to 75% due to airline and rail payment timing issues and will be reversed in the 2H18. Full year cashflow conversion is expected to be about 100%.
Guidance is upgraded; will also benefit from a lower US tax rate
CTD said that it is trading at the top end of its previous FY18 underlying EBITDA guidance range or A$125m, up 27.5% on FY17. Guidance was previously A$120-125m. We view this as a strong outcome given the appreciation in the AUD. The upgrade reflects market share wins. Importantly, activity levels in the US are now picking up and airfares in Asia are stabilising. We remain comfortable sitting slightly ahead of guidance at A$126.9m and highlight CTD's track record of surprising on the upside.
Following the fall in the US tax rate, CTD's new tax rate guidance is 24-25% in FY18, falling to 20-22% in FY19. Our FY18 NPAT forecast has fallen 1.6% due to higher D&A however our NPAT forecasts have risen by 4.4% in FY19 and 3.1% in FY20.
Corporate Travel Management is trading on an FY19 PE (pre-client intangibles) of 22.1x. We believe CTD should trade on at least 25x. CTD is a well-managed, quality growth company, offering clients an innovative and technologically superior corporate travel solution. Its value proposition has allowed it to retain and win new business across a number of global markets. The global corporate travel market opportunity is large and there is considerable market share CTD can win over coming years to drive strong organic earnings growth.
Beyond this strong result, share price catalysts include further accretive acquisitions with opportunities currently being evaluated in both North America and Europe.
We retain our Add recommendation.
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Disclaimer(s): Analyst owns shares.
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