It might not generate half as many news headlines as stocks like the The a2 Milk Company (ASX: A2M) or Domino’s Pizza Ltd (ASX: DMP), but Corporate Travel Management Ltd (ASX: CTD) has still managed to produce similar or superior returns for shareholders over the last few years.
It’s growth is thanks partly to a history of acquiring smaller travel businesses to integrate into the Corporate Travel model and help provide the scale required to be able to offer the best deals to their corporate customers.
While acquisitions have also played a part much of the growth has also been organic as the strong company culture and alignment of employees’ interests contributes to new client wins and business development across ANZ, Asia, Europe and its U.S. operations.
This afternoon the group announced it is to deepen its attempt to getting leverage to the fast-growing Chinese corporate travel market with the acquisition of 75.1% of Hong Kong-based Lotus Travel for $50 million plus up to $6.6 million in conditional performance payments. The deal is priced at 10x Lotus’s FY17 EBITDA and is expected to complete in October to contribute around $4 million in EBITDA to Corporate Travel in FY 2019.
The group is to raise $40 million to fund the deal by issuing 1.554 million new shares at $25.75 each, which is good timing given the stock has been setting new record highs recently on the back of improved sentiment and the falling Aussie dollar.
Moreover, the group also confirmed that it expects to meet or beat the top end of its prior guidance for full year EBITDA of $125 million in financial year 2018. In response to the news the stock is trading flat at $27.60 in late afternoon trade, which way it travels in over the short term is likely to depend on what kind of guidance the group provides at its full year results in August.
Over the long term it retains a bright outlook being founder led with an outstanding track record in growing by acquisition without recourse to too much debt.
The benefits of owning acquisitive founder led businesses like Corporate Travel ahead of others run by management teams with minimal stakes like BWX Ltd (ASX: BWX) should be glaringly apparent to investors as the founder-led businesses will focus on the long term, while others like BWX appear to be more interested in their own short-term financial incentives and well being.
The kicker is that Corporate Travel’s valuations remains reasonable relative to its growth rates, especially when compared to the excessive valuations tags sported by more popular and fast-growing businesses like WiseTech and Altium Limited (ASX: ALU).
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The Motley Fool Australia owns shares of and has recommended BWX Limited and Corporate Travel Management Limited & Domino's Pizza. The Motley Fool Australia owns shares of A2 Milk, Altium, and WiseTech Global. 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 Scott Phillips.