Corporate Travel Management Ltd shares take off on profit upgrade

Credit: Doug

Shares in travel management business Corporate Travel Management Ltd (ASX: CTD) lifted more than 7% in afternoon trade after the company announced a new travel agency acquisition and provided an updated profit guidance.

The full year underlying EBITDA amount is now expected to come in around $68 million, up $4.2 million above the guidance provided at the company’s recent AGM.

Around $4 million of the earnings uplift is expected to be due to the new acquisition, although it appears the company’s overall profit guidance is once again creeping higher as it continues to deliver on its stated ambition of becoming a global corporate travel leader.

Corporate Travel will pay US$34.3 million for a California-based travel business named Montrose Travel on a valuation around 6x the acquisition’s 2015 profit, with a one-year earn out provision for out-performance.

The acquisition will be funded through stock grants to the founders (20%) with the balance of US$27.5 million funded via a mix of US operating cash flow and short-term debt. This looks a reasonable deal for both parties and Corporate Travel will likely be looking to extract synergies, ramp sales and harness its own market-leading technology as it has done with many previous acquisitions.

In fact Corporate Travel’s overseas potential is largely what makes it a tantalising growth prospect with the latest acquisition operating out of California a state that would be the world’s ninth largest economy on a standalone basis, with a GDP of more than US$2 trillion, compared to the whole of Australia around just US$1.6 trillion.

If Corporate Travel is able to execute on its overseas expansion ambitions both organically and via acquisitions the comparisons with the $3.7 billion Aussie travel phenomenon Flight Centre Travel Group Ltd (ASX: FLT) may not seem so preposterous after all.

In fact Corporate Travel’s market valuation of around $1.1 billion is starting to sneak up on Flight Centre and arguably as a digitally-oriented business it’s more built for the future than Flight Centre which still retains a bricks-and-mortar store operating model.

Of course all this growth means the shares don’t come cheap when trading on around 31x analysts’ estimates for earnings per share this financial year. However, it has a strong track record and often it’s the company executing a relatively simple business model well that produces the most gangbusters growth.

Corporate Travel then arguably remains a buy at today’s valuation of $12 per share.

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Motley Fool contributor Tom Richardson owns shares of Corporate Travel Management Limited.

You can find Tom on Twitter @tommyr345

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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