VGI Report should be made public, page-12

I have been looking at VGI's response to CTD's response to VGI's initial report. It seems they are clutching at straws and some of their responses contain conflicting information.

There are number of identifiable flaws - 

Point 1 - Profitability level - they are comparing valuations of a business to business purchase of a company at 7.4x EBITDA to a public listed entity at 14x EBITDA - lack of market liquidity reduces a private company's value so not a valid comparison.

Point 2 - Growth through acquisitions - Not sure if this really counts as a red flag. Sharing office costs, economies of scale etc all good for a company. Not really cause to short a company as earnings have grown quicker than any share price additional issues.

Point 3 - Acquisition cash outflows that fail to reconcile - VGI acknowledged that CTD provided the reconciliation

"We note that Corporate Travel has provided a reconciliation of the $7.8 million of additional payments made in relation to acquisitions."

Point 4 - Lowered goodwill discount rates - implication from VGI is there should've been a goodwill/equity writedown/ impairment by using a different discount rate. It's all very subjective and CTD responded already to this. If you look at the return on equity from 2017 to 2018. It went from 14.1% to 16.9% from FY2017 to FY2018. Even if you took VGI's comments on board and used a different discount rate the equity would then be lower and the underlying ROE thus higher than they reported.

Point 5 - Very little interest income

Not sure if there's anything valid here - explained by CTD as they are comparing retail travel businesses which take payment upfront to corporate which settle more quickly and one would assume and the implication is they require travel at the last minute or not planned as far in advance.

Point 6 - Low client cash balances - not scaling up with growth in TTV - Will await CTD's response on this. Conjecture from VGI. Previously explained by CTD as they only do a small proportion of leisure travel.

Point 7 - Significant changes to revenue recognition policy - has already been answered but VGI requesting more information from CTD.

Point 8 - Growing receivables - explained by CTD in previous response - VGI implying more aggressive revenue recognition or of poor selection of clients being offered credit terms. CTD also said "CTM has not experienced any material write-offs as a result of non-collectability of outstanding debts. "

Point 9 - Large balance sheet that provides meaningful discretion - no different to any large company. CTD is not really unique in this matter.

Point 10 - Declining 2H18 cash flows - already answered by CTD.

more points that have already been answered...

More issues that have already been answered then some more blurb on offices and more photos. They didn't look at the main offices - I know someone who works in CTD's the Sydney office (only found out after the first VGI report came out) and he told me there are around 150 employees in their office and it's growing rapidly. The offices thing seems to be their main focus probably because it's visual and they had to send someone there to take lots of photos. But they didn't have a comprehensive look at all the offices - perhaps CTD will produce some photos of their offices with people in or people who work from home or whatever - not sure what is served by having photos of offices that came presumably as part of their acquisitions and are no longer needed.

Then Point 18 - Long-standing CEO and CFO - long length of tenure seen as a bad thing...??

Point 19 - contracting point 18 - High turnover in North America CEO role - short length of tenure seen as a bad thing

Not really anything new or significant in my opinion. VGI won't acknowledge they have made judgement errors.

Their document disclaimer basically says it's all based on opinions and estimates - presumably as they don't have the access to data that the company has or have actually worked in the company. They also say 'there is always a chance that they are wrong',

They also state 'represent or warrant the fairness, accuracy, completeness, reliability or correctness of the information, opinions or conclusions in this document, or the reasonableness of any assumptions in this document,'. They go on to say 'VGI Partners might end up being wrong and actual results may vary in a materially positive or negative manner'.

Morgan Stanley already held their overweight outlook on CTD with the first VGI report. I wonder how long this farce of publishing biased information then a trading halt then the company disputing it will go on for. Perhaps the independent auditor's report that was mentioned in today's Fin Review will take some of the heat off when it comes out.

What's everyone's thoughts on the document, the process and the facts raised?

The link to the document is here if anyone wants to take a look.

https://bitly.com/