Shares in Corporate Travel Management Ltd (ASX: CTD) got off to a strong start today, rising 6% after the company delivered a strong full-year report. Shareholders are no doubt looking forward to the forecast 23% to 30% rise in Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) in 2017.
Here's what you need to know:
- Total Transaction Value (TTV)* rose 35% to $3,587 million
- Revenues rose 34% to $265 million
- Net Profit After Tax (NPAT) rose 60% to $42 million
- Underlying NPAT rose 58% to $49 million, after excluding amortisation costs relating to an acquisition
- Earnings Per Share rose 54% to 43 cents per share
- Dividends per share rose 50% to 24 cents per share
- Outlook for continued growth across all segments in 2017, driven by contributions of recent acquisitions plus new contract wins
- Guidance for 23% to 30% increase in Underlying EBITDA in 2017 compared to 2016's result
*TTV is the value of the travel services the company sold. Revenue is the amount of money the company generated for itself by selling said services.
So What?
A strong result from Corporate Travel, more so when one considers that 80% of its growth this year (according to management) was 'organic', resulting from new client wins rather than acquisitions. The company managed to grow both market share and EBIT margins, suggesting that its increasing scale is both winning it new clients and making it more profitable.
Looking at the company's cash flow statement, I noticed that 'payments to suppliers and employees' cash expenses grew just 4%, even though cash receipts from customers leapt 28%. There are a number of things that can affect the relationship between the two expenses, but this backs up management's assertion that Corporate Travel is scaling up nicely.
The effects weren't as profound when I looked at the comprehensive income statement, yet employee expenses (by far the biggest cost) did fall to 56.3% of revenue, from 57.4% previously. Combined with limited amounts of debt and a long growth runway, this is a big tick for Corporate Travel.
Now What?
Using today's underlying (Corporate Travel calls them 'Adjusted') profit results, the company is trading on a Price to Earnings (P/E) ratio of 35 times its full year earnings. This is nearly twice that of the broader ASX and, in order to justify the purchase price, investors must consider where growth is coming from.
Asian growth is expected to be limited this year after a strong year last year, so the US and Australian markets are in focus. Both Australian and US segments are approximately the same size in terms of revenue, although Australia is significantly more profitable. Each is expected to drive growth forward thanks to new client wins in both markets. The total market size is much greater in the US however, and with Corporate Travel just getting started there, investors should expect the US to become increasingly important over time.
Well, is it a buy?
With a growing presence in a number of key growth regions – each significantly larger than Australia – Corporate Travel has a long runway ahead of it. Today's prices reflect that, but with scale advantages starting to build plus the rollout of new technology, Corporate Travel could be an attractive long-term buy today.
