Rollout Of Sleep Space And Scout Will Drive Efficiency In Travel Sector

Key Takeaways

• Turnaround and operational efficiencies in North America and ANZ drive revenue and net margin improvements through EBITDA growth and expanded margins.
  
• Strategic initiatives and technology investments are expected to enhance margins, efficiency, and EPS through operational efficiencies and cost savings.
  
• Government policy changes and reduced demand for humanitarian projects, combined with market volatility and competition, negatively impact revenue and earnings forecasts.

Catalysts

A travel management solutions company, manages the procurement and delivery of travel services in Australia and New Zealand, North America, Asia, and Europe.

• The turnaround in North America and ANZ in the second half of FY '24, with both regions experiencing significant EBITDA growth and margin expansion, provides strong momentum into FY '25. This is expected to positively impact revenue growth and net margins.
  
• The company's focus on key initiatives such as the rollout of Sleep Space, a proprietary hotel content engine, and the automation tool Scout, is anticipated to drive improved margins and efficiency, thereby enhancing net margins and earnings due to cost savings.
  
• CTM's track record of increasing revenue per full-time equivalent employee by 35% since FY '19 suggests operational efficiencies that are expected to continue driving revenue growth and improving net margins as the company leverages its technology investments.
  
• The completion of integration processes and management restructuring in North America has poised the company for faster client onboarding and higher profitability, indicating a focus on improving earnings through operational efficiencies and margin growth.
  
• The anticipated strong cash flow and buyback program, signaled by extending the buyback amount to up to $100 million, demonstrate confidence in future earnings growth and cash generation, potentially leading to increased earnings per share (EPS).

Corporate Travel Management Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Corporate Travel Management's revenue will grow by 5.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 11.9% today to 15.7% in 3 years time.
• Analysts expect earnings to reach A$131.8 million (and earnings per share of A$0.92) by about February 2028, up from A$84.5 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting A$153.8 million in earnings, and the most bearish expecting A$98.4 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 18.0x on those 2028 earnings, down from 26.0x today. This future PE is lower than the current PE for the AU Hospitality industry at 24.1x.
• Analysts expect the number of shares outstanding to decline by 1.04% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.38%, as per the Simply Wall St company report.

Corporate Travel Management Future Earnings Per Share Growth

Risks

• Changes in government policy significantly reduced forecasted revenue from bridging accommodation contracts, impacting projected revenue growth.
  
• Unanticipated rapid tapering of war-related humanitarian projects in Europe led to a 4% miss from bottom guidance, affecting short-term earnings.
  
• Declining ticket prices in Asia impacted overrides and revenue, potentially affecting net margins in that region.
  
• Increased competition, especially in the North American market, could pressure client retention and win rates, impacting future revenue streams.
  
• Exposure to macroeconomic volatility, especially in Europe, as one-off projects decrease, could lead to unpredictable revenue and earnings patterns.

Valuation

• The analysts have a consensus price target of A$13.96 for Corporate Travel Management based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$16.4, and the most bearish reporting a price target of just A$12.1.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$840.4 million, earnings will come to A$131.8 million, and it would be trading on a PE ratio of 18.0x, assuming you use a discount rate of 7.4%.
  
• Given the current share price of A$15.45, the analyst price target of A$13.96 is 10.7% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.