Corporate Travel Management: Stepping up to the majors

About the author:

Belinda Moore
Author name:
By Belinda Moore
Job title:
Senior Analyst
Date posted:
26 October 2020, 4:20 PM
Sectors Covered:
Agriculture, Food & Beverage, Travel and Chemicals

  • CTD recently announced the acquisition of Travel & Transport (T&T) in the US. When combined with CTD’s existing North American business, the company will have material scale in this key growth market.
  • When travel demand recovers post COVID-19 (we assume FY23), CTD should achieve its A$10bn TTV target with the addition of T&T. It will also become the fifth largest corporate travel company in the world. The acquisition is highly accretive.
  • CTD remains our key pick in the travel sector. We resume coverage with an Add rating (login to view more). From here, key share price catalysts include its AGM trading update, borders reopening, rapid COVID-19 testing at airports, success in vaccine development and further accretive M&A opportunities.

Acquisition of Travel & Transport - will transform US business

On 30 October, CTD will acquire Travel & Transport (T&T), a leading corporate travel company in the US. Strategically, this acquisition is highly compelling. It provides CTD with its targeted level of scale and will make it the fifth largest player in the market and the biggest in the mid-market. The businesses complement each other with T&T’s strong position on the East Coast and its largely professional services and healthcare client base.

When travel normalises the combined businesses will have TTV over A$5.2bn in the US and CTD’s market share in the US corporate travel market (was US$350bn pre COVID- 19) will rise to 1.5% from ~0.4%. CTD will therefore have greater buying power and be in a position to optimise global supplier revenue and support costs. CTD intends to overlay its technology and business systems to increase the efficiency of T&T and its people.

The acquisition will give CTD access to a world class hotel program which will further bolster its value proposition with clients, while also being a lucrative revenue stream.

Attractive purchase price; material synergies are on offer

Consideration for T&T is US$200.4m. Due to COVID-19, CTD has been able to purchase the business on an attractive multiple - 7.0x CY19 EBITDA of US$29m (A$41m) or 4.3x post synergies of US$18m (A$25m). In our view, CTD’s synergy target is conservative as it doesn’t include better buying power or technology synergies. Relative to CTD, T&T has a low EBITDA margin (14% vs 27%), however management is targeting a similar margin overtime. Applying CTD’s CY19 margin to T&T’s TTV of US$2.8bn (A$4.0bn) would equate to EBITDA of US$56.3m or A$79.3m. We note CTD has a good track record of improving the margins of its acquired businesses.

Highly EPS accretive when travel demand normalises

Like CTD, T&T can be highly profitable on domestic travel alone. Consistent with our modelling of CTD, we assume that T&T earnings normalise to FY19 levels in FY23. We also assume the full amount of targeted synergies (US$18m) is achieved by FY23 and increase to US$25.5m in FY24.

Based on our FY23/24 forecasts, we believe the acquisition is 11.7%/17.4% EPS accretive. CTD’s balance sheet is well positioned to ride out a low revenue environment and take advantage of further M&A opportunities that may arise (upside to our forecasts). 

Investment view – Add rating 

In our view, T&T is a strategically important acquisition, providing CTD’s North American business with the necessary scale to underpin a strong competitive position which is well placed to leverage a travel recovery post COVID-19 and therefore deliver a solid earnings growth profile over the next few years. We upgrade to an Add rating (login to view target price).

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