Corporate Travel Management Announces Acquisition of Corporate Travel Planners

Leading global travel management services provider Corporate Travel Management Limited (ASX: CTD) has always been focused on retaining and winning new customers, with strategic acquisitions that enhance the mix of technology, scale and local market expertise it can offer to its customers. The company has been operating in several regions including North America, Europe, Asia as well as ANZ.

Since its IPO, the company has substantially increased its shareholders’ wealth and has continued to increase its dividends as well (refer below image).

(Source: Company Reports)

To know more about the company, let us now look at its financials.

Group FY19 Highlights

· Underlying EBITDA up 20% to $150.1 million (includes favourable $4.8m FX to forecasted FX assumptions)

· Reported Operating Cash Flow 113% (2H19 166%) due to the timing of payment cycle to reporting period

· Full year dividend up 11% to 40 cents (final dividend 22 cents, 50% franked)

· Strong conversion of revenue to EBITDA due to the benefits of CTD's technology platform investment playing out

· Continued strong market share gains in all markets. TTV ex Lotus up 15% on the p.c.p., reflecting market share growth

· 2H result impacted by a unique set of macro-economic headwinds affecting client activity across 3 of 4 regions (EUR-no Brexit, Asia-trade war escalation/HKG demonstrations, ANZ-preelection)

· Full year result underscores strength of CTD’s business model, in variable market conditions

Acquisition of Corporate Travel Planners Inc

The company today has further strengthened its hold in the North America market by striking a deal to acquire Texas based Corporate Travel Planners Inc (CTP), a company specializing in corporate travel services.

The company will initially make a payment of USD 18.0 million. It is to be noted that cash payment will be funded by short term debt and cash flow.

It is expected that the company’s future growth in North America will be positively affected by this acquisition. The company has been investing in this region to continue supporting its long-term sustainable growth. In guidance provided in November 2019, CTD confirmed that it expects its EBITDA to be slightly down for 1H20, however it does expect a stronger 2H20 with client wins from technology and a planned reduction in costs to translate into higher comparative full year result.

Major highlights of the CTP acquisition:

• Initial consideration is USD 18.0 million (AUD 26.5 million), representing approximately 6x pro-forma FY20 NPBT with consideration consisting of around 10% CTD stock (to be issued in accordance with the agreement) and 90 per cent cash;
• A further maximum contingent consideration of USD 18.0 million (AUD26.5 million) capped, subject to achievement of future profit hurdles;
• The acquisition will take effect from 1 January 2020 and its six-month pre-tax contribution to the FY2020 results is expected to be approximately USD1.5 million (AUD 2.2 million).

The company believes that this acquisition will be highly complementary to its organic expansion strategy. In addition to this, the inclusion of CTP’s business will forge a strong service proposition to the University and Education sector that will contribute strongly to CTD’s future growth in North America.

Major benefits of the acquisition

Increasing USA scale: This transaction is anticipated to grow the company’s North American segment annualised TTV (Total Transaction value) to more than USD 1.5 billion (AUD2.2 billion ), further consolidating CTD as a top ten travel management company in North America, enabling CTD to better position long term organic growth, and leverage its buying power and investment in technology.

Specialised niche in University and Education sector: CTP has a strong market reputation and major focus on the University and Education sector, with unique offerings to its clients that deliver competitive advantages and expertise in this significant segment.

Another growth sector for CTD North America: The company hold positive views about this sector and believes that it is highly complementary to its value proposition. CTD is of the view that the combined business of CTP can better leverage the organic growth opportunities in the sector. CTD AU/NZ has been very successful in this sector and CTD sees this acquisition as a way to expand market share into the University and Education sector in North America.

Low exposure to economic downturns: Similar to the company’s experience in the government sector, the University sector travel activity tends to be resilient in economic downturns;

EPS accretive: The CTP acquisition price represents a 6x NPBT multiple on forecast annualised FY20 NPBT;

Alignment: The principal, Christy Prescott, will own CTD stock and has entered into an employment contract bringing to CTD her knowledge, reputation and expertise in the University and Education sector.

CTD Guidance

• Recently in November CTD confirmed that its full year guidance of underlying EBITDA between $165-175 million, representing growth of around 10%-16.5% on the prior year.
• CTD do expect a positive comparative full year result given the very weak outcome in 2H19, integration benefits, and the momentum from client wins across all segments of the business.
• CTD technology adoption remains a core focus in North America. The company’s proprietary technology is consistently cited as a deciding factor in new client wins.
• CTD expects EBITDA to be slightly down for 1H20, however CTD do expect a stronger 2H20 with client wins from technology and a planned reduction in costs to translate into higher comparative full year result.
• CTD expects group costs to be relatively flat in future years.

In the last three months, CTD’s stock price has increased by 11.75% as on 23 December 2019. At market close on 24 November 2019, CTD stock was trading at a price of $20.760 with a market cap of $2.26 billion.

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