Macquarie was the only house to upgrade. In a note on September 30, assessing the stock as an “outperform” with a target price of $16.40, its analysts concluded: “Forecasting the recovery pathway for corporate travel is challenging.
“However, CTD is well placed to rapidly grow market share in the current environment, creating significant value medium-term that could cement its position in the top five largest TMCs [travel management companies] globally, specialising in the mid-market.”
We deem this an opportunistic acquisition and we back management to execute over time.
— Alex McLean, Bell Potter analyst
The positive view is partly based on the businesses’ complementary footprints. Travel and Transport’s business is mainly on the US east coast while Corporate Travel’s is concentrated in the western states.
The Macquarie analysts also say there will be more takeover opportunities for the Australian company.
“COVID-19 continues to have a material impact on corporate travel,” they said. “[Travel agents] lacking a strong balance sheet or exposure to essential travel clients (for example. mining) will be further stressed as COVID-19 impacts persist, providing CTD more opportunities for consolidation.”
There are critics of Corporate Travel. It retains heavy interest from short-sellers other than VGI, and is the 11th most shorted stock on the stock exchange, according to the shortman.com.au website.
There are broader issues with the sector too. Corporate Travel, the same as Flight Centre and Webjet, have seen catastrophic falls in their share prices since the toll of the pandemic on their businesses became apparent in February.
And although they have been buoyed in recent days by the relaxation of state border closures and advancement on a trans-Tasman tourism bubble, there remains a real prospect travel demand will take years to bounce back. For example, The International Air Transport Association – the global peak body for airlines – does not expect air travel to rebound to pre-virus revenue until 2024.
All three travel agents posted significant reversals to their prior profits in the 2020 financial year and have all now gone to the market to raise capital.
The difference for Corporate Travel is that it has not been as badly affected as its rivals.
Its share price has fallen only 14 per cent since the beginning of the year, compared to more than 50 per cent for Flight Centre and Webjet. It lost just $10 million last financial year, compared to the $662 million loss at Flight Centre and $144 million loss at Webjet. Its capital raising was smaller than Webjet’s $346 million raising and €100 million ($163.5 million) note issue and Flight Centre’s $700 million raising.
The market is now responding to Corporate Travel’s relative strength.
Still, Bell Potter analyst Alex McLean highlights potentially low airfares aimed at luring travellers back onto planes and acquisition indigestion among his primary concerns.
“Though less exposed to movements in airfares compared to retail travel companies, CTD does have exposure through back-end revenue and through the wholesale division in Asia,” he told clients in an October 1 note.
“CTD has made a number of acquisitions and will likely continue to do so. As such, there are risks around the price paid for acquisitions and integration, which could impact operational and financial performance.”
Nevertheless, McLean remained broadly positive on the business after the Travel and Transport acquisition, maintaining his “buy” rating and raising his target price to $18.50.
“Overall, despite the uncertainty facing the resumption of corporate travel (particularly international), we deem this an opportunistic acquisition and we back management to execute over time,” he said.
Among the significant factors in the acquisition for him was Travel and Transport’s subsidiary, Radius Travel.
“Radius hotel program is one of the world’s leading corporate hotel buying groups that adds value to the client experience and further builds out CTD’s already rich content offering,” he said.
“CTD’s ability to navigate the COVID-19 crisis ahead of competitors and market expectations highlights not only the strength of the business model but, importantly, the strength of CTD’s management team in our view.”