There is no doubt that Corporate Travel Management Ltd (ASX: CTD) suffered its fair share of negative publicity in 2019.
Last year, the Corporate Travel share price came under pressure following the release of its full-year results. The company reported its FY19 earnings before interest, tax, depreciation and amortisation (EBITDA) rose 20% to $150.1 million, the top end of guidance, and it grew its revenue by 21%.
This appeared to be a solid result, however investors appeared disappointed with its guidance for the year ahead. Management advised that it expected underlying EBITDA of between $165–175 million. This equated to year-on-year growth of only between 10–17%, lower than market expectations.
Strong diversification and global exposure continue to drive growth
Despite the negative market reaction last year, the fundamentals and growth prospects of Corporate Travel appear to be very solid.
I believe Corporate Travel is reasonably well placed for further share price growth over the next decade, due to its diversified business model and exposure to global growth opportunities outside its local markets. More than 70% of its revenue base is generated outside of Australia and New Zealand, with its reach extending to the UK, Europe, Asia and North America. This percentage is also growing, with 72% of its revenue generated outside of the Australia and New Zealand region in FY19, up from 70% a year prior.
Corporate Travel has proved more successful than most other companies in transferring its culture, technology and processes to the businesses it acquires.
Overseas divisions performing well
The second half of FY20 is proving to be stronger than the first half for Corporate Travel and the Australia and New Zealand segment continues to perform solidly due to recent client wins.
While the Asian segment has been impacted from recent Hong Kong protests, its European division has performed well in challenging market conditions. This has been driven by strong execution and record client wins.
There are signs of improving macroeconomic factors in Europe and Asia, including easing of trade tensions between the US and China, and more clarity in UK’s Brexit withdrawal agreement. All these factors should be a positive boost to the travel sector.
Also, Corporate Travel very recently entered into an agreement to acquire Texas-based Corporate Travel Planners, which specialises in corporate travel services with a focus on the university and education sector. The acquisition will deliver key benefits to its North American segment, increasing its scale and giving it exposure to a specialised sector with strong growth potential.
Corporate Travel has a proven track record of selecting the right companies to acquire, and then successfully growing these companies while continuing to strongly grow its local Australian and New Zealand operations.
I believe Corporate Travel is well placed to grow both its domestic and international market share over the next 5–10 years, which is likely to lead to strong share price growth.
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Motley Fool contributor Phil Harpur owns shares of Corporate Travel Management Limited. 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.