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Why Corporate Travel Management Ltd (ASX:CTD) shares are in a trading halt

The Corporate Travel Management Ltd (ASX: CTD) share price won’t be going anywhere this morning after the company requested a trading halt.

The halt has been requested “so that the Company can review and respond to a research report which it has recently received.”

What is this research report?

This weekend the corporate travel specialist came under attack from hedge fund VGI Partners.

According to the AFR, the fund manager has accused Corporate Travel Management of aggressive accounting and poor disclosure, claiming there are 20 red flags that “paint a troubling picture” of the market darling.

One red flag is how the company can be twice as profitable as its rivals despite its customers being sophisticated buyers of travel services.

It has suggested that the sizeable organic profit growth in its FY 2018 results may have been due to changes that management made in its accounting policies. It also pointed to the interest earned on its cash balance as being suspiciously low.

Another red flag of note is related to acquisitions. VGI believes that the cash outflows relating to acquisitions do not reconcile and that the discount rate used on goodwill is lower than you would expect.

What now?

As we have seen with the likes of Blue Sky Alternative Investments Ltd (ASX: BLA) and Quintis Ltd (ASX: QIN), allegations of this nature can weigh heavily on a company’s shares.

In light of this, I think it was wise for the company to call its trading halt today and I’m optimistic that management will be able to satisfactorily explain the 20 red flags outlined in the research report.

The company’s shares are expected to remain in a trading halt until October 31, but I wouldn’t be surprised to see this extended to allow management more time to address the allegations in full.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Corporate Travel Management Limited. 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.