Corporate Travel Management shares surge as it announces covenant waiver

Corporate Travel Management Ltd (ASX: CTD) shares have surged 5% this morning as it announced the waiver of financial covenants by its banks.

Corporate Travel Management Ltd (ASX: CTD) shares have surged more than 5% this morning as it announced the waiver of financial covenants by its banks. All financial covenants for FY20 have been waived and covenant testing for the period ending 30 June 2021 will be based on 2H21 performance. 

Corporate Travel Management has been hit hard by coronavirus-related travel restrictions. The company provides travel solutions spanning corporate, events, leisure, loyalty, and wholesale travel. Established in 1994 as a two-person start-up, the company has grown to generate $222 million in revenue in 1H20. 

Liquidity position

Corporate Travel Management has not sought additional capital during the coronavirus crisis and currently has a net cash position of $30 million. Its total banking facilities have been reduced by £25 million to £100 million in agreement with its bankers. The company says it has low cash burn and remains in a strong liquidity position, well placed to rebound once travel resumes. 

Corporate Travel Management runs a capital-light model with a small physical footprint. Over 70% of costs are people-related and 50% of remaining costs are variable. Prior to COVID-19, domestic travel accounted for approximately 60% of revenues, meaning the return of domestic activity will provide significant benefits, particularly in Australia/New Zealand and Europe. 

Cost base slashed 

The company has reduced its cost base from a range of $26 million to $27 million a month pre-COVID-19 to $10 million to $12 million a month from April. This has been achieved through a combination of retrenchment, temporary stand-downs, shorter working weeks and salary reductions. Non-essential expenditure has been eliminated and capital expenditure, which is now focused on domestic technology development, has been reduced. 

Positioning for recovery 

With the collapse of the travel market, Corporate Travel Management recorded underlying earnings before interest, tax, depreciation and amortisation (EBITDA) loss of $3.2 million in March. Nonetheless, the business is positioning itself for a domestic recovery. The client base has been increased throughout the COVID-19 period through new client wins, retentions, and extensions of contracts. 

Corporate Travel Management says it has a resilient business model which can ramp up and down quickly as required. It says it has the ability to operate a high performing domestic-only business with its current reduced cost base until international travel recovers. 

In China, which was the first country to experience coronavirus lockdowns, domestic airline utilisation has recovered to 47% of 2019 volumes since mid-March. Corporate Travel Management says it can quickly return to profitability with a modest recovery in domestic travel. 

Motley Fool contributor Kate O'Brien 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.

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