We recently researched Corporate Travel Management (ASX:CTD) after the Company downgraded its profit guidance for FY25. We concluded that price weakness at the time presented an entry opportunity. In particular, near-term risk surrounding group earnings (i.e. over-rides and contract delays) appeared priced in. With the shares having trended upwards since our recent report, we consider whether current levels remain attractive.
About Corporate Travel Management
Corporate Travel Management is a global provider of travel solutions spanning corporate, events, leisure, loyalty and wholesale travel. CTD designs and implements tailored travel management solutions for clients which can be delivered in every it operates in.
The Company has four reporting segments based on geographical exposure: Australia & NZ (ANZ), North America, Asia, and Europe.
Key Fundamental Drivers
Continued Momentum on New Client Wins
New client wins are important from the viewpoint that they offset the uncertainty from corporate travel budgets in the near term. They are also the biggest driver of CTD’s earnings growth. New client wins have accelerated from $1.0b Total Transaction Value (TTV) per annum to $1.6b TTV (half of which was in EU) in FY25.
The progress on new client wins is well ahead of the Company’s target for $1b of new client wins in FY25. Further, client retention remains high (at 97%, consistent with 1H25 and FY24), which is the long-term rate that the Company intends to maintain. These wins will underpin FY26 earnings growth. Assuming the new client wins are secured at CTD’s historical revenue margin of ~7%, this would contribute +17% revenue growth in FY26.
There is also a pipeline for further new contract wins (which typically take 6-9 months to come online). The Company is targeting incremental contract wins via underpenetrated markets across the EU and North America.
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Operating Leverage Expected To Return In Fy26
The full flow-through of the revenue decline to EBITDA in FY25 from the latest downgrade implies operating de-leverage in FY25, given no cost-cutting measures have been implemented. At the time of the most recent profit downgrade, CTD had not reduced its cost base, hence the higher earnings impact.
While CTD has the ability to appropriately adjust its cost base, one challenge is getting line of sight on the outlook before cutting costs too aggressively, which could impact deleverage in 1H26. However, we expect operating leverage to increase in FY26, as CTD will benefit from several factors. These include the new client wins, the global rollout of Sleep Space (which improves revenue yields), stabilising airfares, automation initiatives (reduces costs and increases productivity) and the uptake of Lightning OBT. Further, CTD expects a strong FY26 from Europe reflecting a record number of new client wins.
Net Cash Balance Sheet Position To Increase
As at 31 December 2024, the balance sheet was in a net cash balance of $75.5m, which was a decline on the FY24 level of $134.8m. CTD continues to have no debt, although CTD has a $100m unused debt facility, which matures in July 2025.
The net cash balance at the end of FY25 is expected to improve to ~$110m, including an estimate for the current $100m share buyback program. Further, cashflow has been strong in line with the indication of full year cash conversion of 80 90% provided at the 1H25 results release in February.
The strong balance sheet position provides optionality for potential Merger & Acquisition (M&A) opportunities and continued capital management via dividends and share buybacks. In addition, there is capacity to invest in productivity and innovation projects. CTD is seeking to deliver a range of projects that will deliver revenue gains and cost savings over FY24-29 (e.g SleepSpace).
Fundamental View
The strongest indications that the fundamentals remain strong are that new client wins over the past two months have accelerated and client retention has not been impacted. These factors suggest that CTD’s recent challenges are cyclical and not structural.
The recent strength in the share price now sees the 1-year forward P/E multiple increase to ~18.5x, which is around the midpoint of the trading range over the last two years. In addition, the current multiple is undemanding in the context of an EPS growth profile of ~24% over FY25-27 on a CAGR basis. Accordingly, the risk-reward balance remains favourable.
Charting View
After peaking in February, CTD then fell back to retest the 2024 lows near $11. In early May it jumped higher on good volume and broke above the short-term downtrend line. CTD is now likely to head higher. Nearest resistance is around $15.50.
Michael Gable is managing director of Fairmont Equities.
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