VGI Partners Launched A Short Campaign Against Corporate Travel Management Limited

The securities of Corporate Travel Management Limited (ASX:CTD) were placed in trading at a halt, following an ASX announcement on 29 October 2018 after hedge fund VGI Partners launched an activist short campaign against the company.

Hedge fund VGI Partners has a solid reputation for picking market winners and losers and recently it has released a 176-page presentation on the travel specialist Corporate Travel Management Limited (CTM), in which VGI has accused Corporate Travel Management of aggressive accounting, poor disclosure of accounts and running ghost offices in Europe and America. VGI Partners have raised questions regarding the credibility of the company’s management and VGI Partners also suggested that Corporate Travel Management’s global footprint is much smaller than the company suggests.

VGI Partners identified 20 “red flags” in a scathing 176-page presentation distributed to its clients due to which VGI has taken a short position over the Corporate Travel Management Limited. The presentation on Corporate Travel is containing pictures of corporate directories, empty offices, back-street buildings and a picture of the CTM "office" in Dutch Harbor in Alaska, which is located in the baggage claim area of the local airport. VGI Partners have also raised questions about the accounts and disclosure of Corporate Travel Management Limited, due to which the shares of CTM were placed in halt as on 29 October 2018.Â

In a note to investors, VGI has informed that it visited the firm’s web-listed offices in Glasgow, Paris, Amsterdam, Stockholm, and Switzerland and it has found no sign of activity in the buildings they supposedly operated out and other offices in the United States were either ghost offices or staffed with a skeleton crew. VGI Partners has questioned how Corporate Travel Management could be twice as profitable as other similar travel agencies and it has also raised questions over the sudden and unexplained change in the process of recognizing revenues in Corporate Travel Management.

In the recently released annual report, the Corporate Travel Management Limited reported that it has earned a statutory net profit after tax (NPAT) of $76.7 million in FY 2018 which was $54.6 million in the FY 2017, representing a 41 percent increase on Y-o-Y basis. The company also reported about its sound financial position, with total assets of $804.8 million at 30 June 2018, an increase of $64.6 million or 9 percent from 30 June 2017. The increase in assets is primarily due to the continued strong operating performance of the business. The continued generation of strong cash flows contributed to the company’s sound financial position, with net cash flows from operating activities of $94.4 million over the year to 30 June 2018. The company was having a total equity of $471.5 million at 30 June 2018.

In the last six months, the share price of Corporate Travel Management Limited increased by 16.72 percent as on 26 October 2018. CTD’s shares last traded at $27.640 with a market capitalization of circa $3 billion as on 29 October 2018 (AEST 2:04 PM).

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