Prepared for take-off
While the process of global re-opening and recovery from the COVID-19 pandemic will undoubtedly be uneven, and setbacks will occur (such as the Delta variant’s impact on Australia and other regions lately), we do believe that due to a combination of vaccination progression, health system preparedness, public opinion, and sheer economic necessity, the world is on an irreversible path towards re-opening.
As this occurs we feel it is important to gradually reposition portfolios to garner exposure to companies that are likely to be major beneficiaries of this trend, and Corporate Travel Management Limited (ASX:CTM) is one such example.
After establishing a leading role in Australia’s business travel market, CTD has taken advantage of its relatively strong balance sheet and superior business model to actually make significant acquisitions overseas during the pandemic (likely leading to highly discounted acquisition prices). While peers were rushing to raise emergency capital to protect their own balance sheets, CTD was able to substantially expand its US business, with the $274m buy-out of Travel & Transport in North America adding scale to existing operations (positive in profitability terms). This will take expected US and UK generated revenues to more than 70% of the group’s overall business. We believe this is a major positive as North American and European markets appear to be ahead of Australia in regards to the re-opening process, and the recent decline in the Australian Dollar further enhances the value of overseas earnings to local investors.
These relatively strong operating geographies bode well for CTD’s earnings, and this was evident in their latest results highlighting strong operating leverage and market share gains, particularly in Europe and the United States, as well as Australia and New Zealand despite near term headwinds with lockdowns. Momentum is building, and with the stock trading more than 30% below its pre-pandemic highs (and yet underlying earnings forecast to exceed pre-pandemic levels by 30% within the next two years) we believe the stock is very attractively priced as a reopening play with businesses devastated by the downturn, mostly in the travel, hospitality and entertainment sectors, seeing a revival in revenue (as spending is redirected) as borders and venues re-open, and tourism numbers recover.
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