Who is winning the Shorting battle, page-29

Corporate Travel Management "Time to look again – upgrade to BUY" (Buy)

PlumbeCurrent valuation incorporating very little for future opportunitiesCTD's share price has fallen by 31% since its peak in Sep18. We remain strong believers in the growth opportunity – via organic and acquisitive channels. At current levels we estimate that nothing is being priced in for future acquisitions, if we apply our blended valuation methodology. If we only apply our PER valuation methodology, we estimate that ~$19m p.a of acquisitions is being priced in - well below the average of $62m p.a spent over the past 5 years. We continue to point to the organic growth within the business, and highlight the technology stack rollout in both Asia and North America – which we believe should continue to drive additional growth. CTD is trading on a 1yr fwd PE of 22.9x, offering organic 3yr (FY20-23) EPS CAGR of 14% – however, we see upside risk to earnings given CTD's acquisitive history. Upgrade to BUY.

A few cross checks

We wanted to check whether CTD's employee presence of 2,300 was overstated. This equates to an average labour cost of $81k per employee, which is similar to our estimate of $75k for FLT and $73k for HLO. As such, we are comfortable that CTD has a strong employee presence – which in our view is the key variable for generating additional sales. We have also looked at half yearly operating cashflow conversion ("OCFC") for Australian travel related stocks (CTD, FLT, HLO, WEB) over the last 4 years (FY15-18). All stocks show large half yearly swings, however average FY OCCF is generally good (CTD 94%, FLT 102%, WEB 127%, HLO 42%). CTD have already guided that 1H19 OCCF will be soft (UBSe 40%), however expect FY19E at ~100%.

FX benefit provides potential upsideWith 67% of CTD's FY19E earnings coming from offshore, the recent weakness in the AUD provides a potential translation benefit for CTD. If current FX rates are maintained until the end of FY19E, we estimate +$5.5m EBITDA or +4% EPS upside.