AI And Automation Will Fuel Future Competitive Advantage

Key Takeaways

• Emphasis on automation and AI is creating cost efficiencies and competitive advantage, enhancing margin expansion and profitability.
  
• Strategic investments in leadership and partnerships are driving execution of goals, supporting shareholder value and long-term growth.
  
• Reliance on Europe and pricing challenges in Asia could impact revenue, while cash flow stress and competitive pressures threaten financial stability and growth.

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 company is focusing on a 5-year strategy to double its EPS, driven by plans to increase market share, improve revenue per transaction, and leverage scale for productivity gains, particularly in the Rest of World regions, impacting revenue and earnings growth positively.
  
• The company expects significant cost efficiencies from automation, AI, and machine learning, which are enhancing margin expansion and creating a competitive advantage in the marketplace, likely leading to improved net margins.
  
• The recent initiatives in Europe, despite being a transition year, are expected to set the region up for long-term growth, particularly from leveraging the Lightning tool and a new sole provider contract with the U.K. government, which will positively affect revenue growth and profitability.
  
• The company has a strong cash position with a focus on capital management, demonstrated by share buybacks and dividends, expected to enhance shareholder value and EPS in the future.
  
• Strategic investment in leadership, including a new CFO and roles focused on productivity and revenue growth, are expected to drive better execution of the strategic goals, thereby supporting improved earnings and long-term financial performance.

Corporate Travel Management Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Corporate Travel Management's revenue will grow by 7.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 9.2% today to 16.6% in 3 years time.
• Analysts expect earnings to reach A$142.9 million (and earnings per share of A$1.01) by about March 2028, up from A$63.5 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting A$157.8 million in earnings, and the most bearish expecting A$128.6 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 19.9x on those 2028 earnings, down from 31.4x today. This future PE is lower than the current PE for the AU Hospitality industry at 22.3x.
• Analysts expect the number of shares outstanding to decline by 1.88% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.61%, as per the Simply Wall St company report.

Corporate Travel Management Future Earnings Per Share Growth

Risks

• The reliance on Europe for future growth could pose a risk, as the region is currently transitioning off one-off projects related to the previous year, potentially impacting overall revenue and margins.
  
• Price deflation in Asia, particularly with a 25% drop in ticket prices in Greater China, has impacted supplier revenue and may continue to affect total transaction revenue negatively.
  
• The significant cash outflow due to unfavorable timing of working capital movements may stress cash conversion ratios and impact net cash flow outcomes.
  
• The indications of a decrease in government expenditure in Europe, as highlighted could suppress public sector revenue and margin expectations in the near term.
  
• Competitive pressures, especially with potentially large mergers, could challenge market share gains and affect revenue growth as illustrated by adjusting client expectations amidst changes in the TMC landscape.

Valuation

• The analysts have a consensus price target of A$17.176 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$19.0, and the most bearish reporting a price target of just A$14.48.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$861.9 million, earnings will come to A$142.9 million, and it would be trading on a PE ratio of 19.9x, assuming you use a discount rate of 7.6%.
• Given the current share price of A$14.05, the analyst price target of A$17.18 is 18.2% higher.
• 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.