The Corporate Travel Management Ltd (ASX: CTD) share price has nearly doubled in August. Despite nationwide travel restrictions, Corporate Travel shares have been flying this month. After starting the month at around $8, the Corporate Travel share price is now trading more than 90% higher at $15.60.
So, what is fuelling the company’s share price, and should you buy?
What is fuelling the Corporate Travel share price?
Corporate Travel recently reported better than expected results for FY20.
For the full year, Corporate Travel reported a statutory loss of $8 million, down from a profit of $86.2 million the year prior. Despite reporting a loss, the company beat revised market expectations for underlying earnings before interest, tax and depreciation (EBITDA). Corporate Travel reported underlying EBITDA for FY20 of $74.4 million, outperforming revised market expectations of $65 million.
The company attributed the results to a stronger than expected second half, from both a revenue and cost perspective. In addition, Corporate Travel reported that its aggressive cost cutting and provision of travel solutions for essential workers during the pandemic had positively contributed to the outcome.
As a result of Corporate Travel’s beat in expectations, management and investors remain optimistic on the company’s future. This optimism has been reflected by the strong performance of the Corporate Travel share price during August.
What is the outlook for Corporate Travel?
With travel restrictions and border closures still clouding the outlook for travel services, Corporate Travel did not provide formal guidance for FY21. However, the company alluded to its robust capital position.
In its full year report, Corporate Travel flaunted its strong balance sheet with no debt and $92 million in cash. This has allowed to company to avoid raising emergency capital during the pandemic, unlike rivals such as Flight Centre Travel Group Ltd (ASX: FLT). Furthermore, Corporate Travel has a rich history of making acquisitions and the current, depressed state of the sector could present opportunities for the company.
Should you invest in Corporate Travel?
In my opinion, Corporate Travel is well positioned to survive and potentially outperform in the current environment.
The company has descent exposure to domestic travel, with 60% of its revenue coming from the segment. In addition, Corporate Travel has exposure to essential travel requirements which should provide significant revenue opportunities.
Corporate Travel also operates a lean business model that relies heavily on technology which helps its cost base.
Although I wouldn’t necessarily be rushing to buy at today’s Corporate Travel share price, I think it’s a key pick in a distressed sector. A prudent strategy would be to wait for a significant pullback or more clarity on travel restrictions before investing.
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Motley Fool contributor Nikhil Gangaram has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Corporate Travel Management Limited. The Motley Fool Australia has recommended Flight Centre Travel Group 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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