The Corporate Travel Management (ASX: CTD) share price has been smashed over the last 12 months, but could it be in the buy zone?
Corporate Travel Management is a provider of cost-effective travel management solutions to the corporate market. Corporate Travel Management's tailored service and technology has allowed it to win market share in Asia, North America, Europe and the Australia/New Zealand regions.
What went wrong?
In a scathing 176-page document released in October 2018, investment management firm Vgi Partners Ltd (ASX: VGI) claimed there were 20 "red flags" that indicated the Corporate Travel Management share price was overvalued. While many of these claims could be dismissed as immaterial, some arguments brought to light major concerns.
Among such claims were accusations of deceptive revenue recognition policies, and lack of organic growth concealed through consecutive acquisitions. The company's cash balance reporting also came under scrutiny, with Vgi Partners claiming it made "no sense" when compared to the transaction volume multiples of industry peers Flight Centre Travel Group Ltd (ASX: FLT) and HelloWorld Travel Ltd (ASX: HLO). Despite Corporate Travel Management vigorously defending itself against these claims, it did little to restore faith to the wider market. In the two weeks following the report, the Corporate Travel Management share price fell more than 30% to a 52-week low of $19.20.
Outlook
While it may be too early to call the shorters wrong, Corporate Travel Management's half-year report certainly provided a temporary relief for investors. The company achieved an underlying EBITDA (excluding acquisitions) of $64.6 million, indicating growth of 21% over the prior corresponding period. Despite lacklustre growth from North America, the company's outperformance in Asia saw total transaction value (TTV) in that region rise 60% to $1070.5 million – flowing into an adjusted EBITDA growth of 34%. Managing Director Jamie Pherous remains optimistic about the company's strategy "to build a global network" and is confident it will achieve the upper end of its full FY19 earnings guidance of $150 million (representing 20% growth on from FY18).
Is Corporate Travel Management a buy?
Although CTM shares jumped as high as $29 off the back of these fantastic results, they have since fallen back to $22. In May, one of Australia's leading brokers, Morgans, cut their CTM price target from $31.65 to $27.50, stating that the company was unlikely to beat analyst expectations. However, if the company is able to achieve its anticipated $150 million in earnings, its current share price would indicate a forward price-to-earnings ratio of 16. In light of the stellar growth opportunities available in a fragmented corporate travel market, I'd consider Corporate Travel Management to be a buy for growth-seeking investors.
