Investors Should Build A Position - $30.30

AFR:

investors should take the opportunity to build a position in Corporate Travel Management in the coming weeks.That's the view of Ord Minnett analyst John O'Shea, who has retained his $30.30 price target on the stock but upgraded his recommendation on the stock to "buy from "hold".The $2.2 billion Brisbane-based travel firm is the subject of an activist campaign instigated by VGI Partners which distributed a 50-page document to its investors on Monday that derided Corporate Travel's response to the issues it previously raised as "weak"."We consider the issues raised highlighted some sloppy attention to detail at the company level with regard to current offices and patents in marketing material," O'Shea wrote in a research note to clients on Wednesday.But he reckons "the investment thesis of the company remains unchanged."

According to O'Shea, the Corporate Travel business model is grow the revenue line through a combination of organic growth (new client wins or tailwinds from economic activity) and acquisitions together with investing in technology to increase efficiency and drive margins higher."We note the revenue reflects a combination of client fees and charges together with supplier commission and associated revenue," O'Shea said. "The key to understanding this business is the importance of scale and the leverage this creates as revenue from a range of sources increases at a greater rate than costs."Corporate Travel's business model also lends itself to material timing differences in both receivables and payables. "It is important to understand that this is not just BSP payments (the way travel agency air tickets are settled) but revenue due and expenses payable to/from airlines and other customers/suppliers.

"In simple terms, O'Shea does not think that the company has an issue with cashflow realisation over the medium to long term. "By definition the price the market pays for the stock should be a function of the current value of future cashflows but as an industry we tend to use PE as a proxy for future maintainable cashflows.""What has changed here is market perception not the underlying value of future cashflows," O'Shea said.