Why this broker sees 17% upside in the Corporate Travel (ASX:CTD) share price

Morgans currently rates Corporate Travel as a buy.

| More on:
A woman looks up at a plane flying in the sky with arms outstretched as the Flight Centre share price surges

Image source: Getty Images

The Corporate Travel Management Ltd (ASX: CTD) share price is currently rated as a buy by the broker Morgans.

There’s currently a price target on Corporate Travel of $25.25. At the current level, that implies Corporate Travel shares could rise by around 17% over the next 12 months.

What does Corporate Travel Management do?

It describes itself as a global leader in business travel management services. The company’s aim is to drive savings, efficiency and safety for businesses and their travellers around the world.

One of the selling points of the business is that it aims to demonstrate a useful return on investment (ROI).

Why is Morgans attracted to the ASX travel share?

The broker was impressed by the FY21 result, thanks to a return to positive earnings before interest, tax, depreciation and amortisation (EBITDA) in the fourth quarter of FY21, which also helped the second half EBITDA.

Morgans points to the northern hemisphere clients that are helping the recovery and it continues to win new clients, whilst having a scalable business model as the recovery continues.

Whilst the broker is expecting Corporate Travel to return to profit and dividend payments in FY22, it is FY23 where the real earnings recovery could happen.

Using Morgans’ numbers, the Corporate Travel share price is valued at 23x FY23’s estimated earnings. Its projected FY21 grossed-up dividend yield of 3%.

How much profit did Corporate Travel generate in FY21?

The company still saw quite a significant net loss after tax. It made an underlying net loss of $33.4 million in FY21 (down 218%) and a statutory net loss of $57.8 million (down 445%).

However, whilst the company reported an underlying EBITDA loss of $7.2 million for the full year, it generated a positive $13.6 million of EBITDA in the fourth quarter. This represented a $19.1 million turnaround for the third quarter and resulted in the FY21 second half underlying EBITDA being a positive $8.1 million.

It generated these numbers after processing $1.61 billion of total transaction value (TTV) in FY21 and $200.5 million of total income. However, $74.1 million of that income came in the fourth quarter, which was led by the “rapid recovery” in North America and Europe.

On top of the fourth quarter numbers, North America was the best region for new client wins in the 2021 calendar year. The Corporate Travel Management share price may also have upside thanks to its “strong synergy realisation” from the Travel & Transport acquisition, which is delivering as planned.

What are the positive signs for the Corporate Travel Management share price for FY22?

Whilst July is only one month, it could mark the start of a stronger year. Corporate Travel said that July 2021 delivered a record post-COVID revenue result and defied the seasonal activity reduction in North America and Europe during the seasonal vacation period.

In the second half of FY22, it’s expecting domestic North American and UK domestic travel to recover rapidly after the summer vacation period as clients return to offices in September. The trans-Atlantic and intra-Europe travel is also expected to open up in the first half of FY22. Vaccinations are expected to allow for a more predictable and sustainably strong Australian domestic travel environment in the second half of FY22.

It’s continuing to look for niche acquisition opportunities that support the global strategy and it’s also targeting a return to dividend payments in the 2022 calendar year.

Should you invest $1,000 in Corporate Travel right now?

Before you consider Corporate Travel, you'll want to hear this.

Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Corporate Travel wasn't one of them.

The online investing service he’s run for nearly a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.

*Returns as of August 16th 2021

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. 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 has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Travel Shares