Corporate Travel Management - Morgans

Hospitality│Australia│Equity research│December 5, 2017

Corporate Travel Management Worth buying again

ADD (previously HOLD) Current price: Target price: Previous target: Up/downside: Reuters: Bloomberg: Market cap:

A$19.51 A$23.00 A$23.00 17.9% CTD.AX CTD AU US$1,575m A$2,070m US$6.20m A$8.00m 106.1m 79.4%

Average daily turnover: Current shares o/s Free float: Price Close

Relative to S&P/ASX 200 (RHS)

25.0

148.0

23.0

136.0

21.0

124.0

19.0

112.0

17.0

100.0

15.0 3

88.0

Vol m

2

Following share price weakness, we upgrade to an Add recommendation. There is now 17.9% upside to our A$23.00 price target. CTD is a high quality growth company. It is well managed and has a competitive advantage with its superior technology, service offering and ROI focus. We expect CTD can continue to deliver strong double digit EPS growth over coming years. With the AUD falling vs the USD and Pound, we have greater confidence in our forecasts. We expect a strong 1H18 result on 21 February and believe CTD will resume making accretive acquisitions in 2018.

Upgrading to an Add rating on this high quality growth company With 17.9% upside to our A$23.00 price target, we upgrade to an Add recommendation. CTD is trading on an FY19 PE (pre-client intangibles) of 21x. We believe that this high quality growth company should trade on at least 25x which equates to a share price of A$23.20. Share price catalysts include a strong 1H18 result, accretive acquisitions and improved trading conditions in the US and Asia. For the 1H18, we forecast underlying EBITDA to rise by 31% to A$53.0m, underlying NPAT to increase by 36% to A$30.5m, 100% cashflow conversion and an interim dividend of 16cps ff vs 12cps in the pcp.

Currencies are now heading in the right direction

1 Dec-16

Mar-17

Jun-17

Sep-17

Source: Bloomberg

Price performance Absolute (%) Relative (%)

1M -16.2 -16.4

3M -8.2 -12.9

12M 15.9 5.3

With the AUD falling against CTD’s key offshore currencies being the USD and Pound, we are comfortable with our FY18 EBITDA forecast of A$126.9m being slightly ahead of guidance of A$120-125m (+22.0-27.5% growth). Guidance applies a currency of USD76c/GBP60p, with a higher currency in the 1H18, followed by weakness in the 2H18 (CTD's more material half). We had been concerned about the currency given a 1c rise in the USD and Pound vs the AUD reduces EBITDA by A$1m and A$0.6m respectively.

Plenty of market share to take in a highly fragmented market Belinda MOORE T (61) 7 3334 4532 E [email protected] Kurt GELSOMINO T (617) 3334 4858 E [email protected]

The highly fragmented nature of the global corporate travel market means there is significant market share opportunities for CTD to realise over time. The global corporate travel market is valued at US$1.4trillion and is growing at US$40bn pa. In Europe (US$500bn) and the US (US$350bn), CTD's market share is less than 1%, while in Asia (US$650bn) it is over 1%, highlighting the substantial market share it has to win over coming years. We also believe that CTD can still increase its market share in ANZ from c15% (FLT's market share is +25%). CTD stands to benefit from lower tax rates in the UK (23% group FY19 EBITDA) and the US (33% of EBITDA) should they materialise.

Focus on innovation and technology to also drive future growth Innovation and superior technology is at the core of CTD’s business model and has allowed it to retain and win new business. The benefit of its technology hubs in Australia and Europe were seen in the FY17 result and supported strong EBITDA margins of 39.7% (vs 36.8% in FY16) and 37.3% (vs 16.4% in FY16) respectively. CTD is now implementing these technology hubs in the US and Asia and should see the benefit of strong margin expansion over coming years. We understand that technology spend gives the company a better ROI than acquisitions. Financial Summary Revenue (A$m) Operating EBITDA (A$m) Net Profit (A$m) Normalised EPS (A$) Normalised EPS Growth FD Normalised P/E (x) DPS (A$) Dividend Yield EV/EBITDA (x) P/FCFE (x) Net Gearing P/BV (x) ROE % Change In Normalised EPS Estimates Normalised EPS/consensus EPS (x)

Jun-16A 260.9 69.0 47.4 0.48 27.7% 40.47 0.24 1.23% 27.88 32.32 (3.7%) 7.45 19.8%

Jun-17A 324.4 98.6 67.0 0.64 33.7% 30.26 0.30 1.54% 20.69 NA (0.9%) 5.32 20.9%

Jun-18F 390.5 126.9 87.1 0.82 27.3% 23.77 0.40 2.05% 16.33 36.16 (3.6%) 4.77 21.2% (0.25%) 1.02

Jun-19F 434.9 146.6 98.6 0.93 13.0% 21.04 0.48 2.47% 14.03 23.74 (8.2%) 4.26 21.4% 0.95% 1.01

Jun-20F 472.6 164.0 111.2 1.04 12.7% 18.67 0.55 2.84% 12.39 21.25 (12.2%) 3.84 21.6% 0.98% 1.01

SOURCE: MORGANS, COMPANY REPORTS

IMPORTANT DISCLOSURES REGARDING COMPANIES THAT ARE THE SUBJECT OF THIS REPORT AND AN EXPLANATION OF RECOMMENDATIONS CAN BE FOUND AT THE END OF THIS DOCUMENT. MORGANS FINANCIAL LIMITED (ABN 49 010 669 726) AFSL 235410 - A PARTICIPANT OF ASX GROUP

Powered by EFA

Hospitality│Australia│Equity research│December 5, 2017

Figure 1: Financial summary Income statement TTV Total revenue EBITDA Depreciation EBITA Amortisation/impairment EBIT Net interest expense Pre-tax profit Income tax expense Minority interests Underlying NPAT Adj. NPAT (client intangibles) Significant items NPAT post abnormals

FY15A 2656.0 197.7 49.1 1.9 47.2 5.6 41.6 0.9 40.7 10.3 2.7 27.6 35.6 -1.3 26.4

FY16A 3587.1 260.9 69.0 2.7 66.3 7.8 58.5 1.7 56.8 11.9 3.6 41.3 47.4 0.8 42.1

FY17A 4161.9 324.4 98.6 1.9 96.7 14.3 82.5 3.2 79.2 20.0 3.3 55.9 67.0 -1.4 54.6

FY18F 4845.9 390.5 126.9 2.5 124.4 14.5 109.9 3.0 106.9 26.5 3.4 77.1 87.1 0.0 77.1

FY19F 5318.7 434.9 146.6 3.5 143.1 11.5 131.6 2.9 128.7 31.8 3.6 93.2 98.7 0.0 93.2

Cash flow statement EBITDA Change in working capital Net interest (pd)/rec Taxes paid Other oper cash items Cash flow from ops (1) Capex (2) Disposals/(acquisitions) Other investing cash flow Cash flow from investing (3) Incr/(decr) in equity Incr/(decr) in debt Ordinary dividend paid Preferred dividends (4) Other financing cash flow Cash flow from fin (5) Forex and disc ops (6) Inc/(decr) cash (1+3+5+6) Equity FCF (1+2+4)

FY15A 49.1 -15.2 -0.1 -8.3 -1.0 24.4 -3.1 -49.2 0.0 -52.2 45.5 0.0 -12.6 0.0 -2.4 30.5 0.0 2.7 21.4

FY16A 69.0 14.9 -1.1 -12.2 -0.4 70.2 -8.2 -41.9 0.0 -50.1 0.0 39.3 -18.5 0.0 -2.5 18.3 0.0 38.4 62.0

FY17A 98.6 -6.6 -2.0 -20.0 -0.8 69.3 -14.0 -103.3 0.0 -117.3 72.2 9.1 -27.6 0.0 -5.0 48.8 0.0 0.8 55.3

FY18F 126.9 10.2 -3.0 -26.5 0.0 107.6 -16.0 -34.4 -5.4 -50.4 0.0 0.0 -35.9 0.0 0.0 -35.9 0.0 21.4 91.6

FY19F 146.6 0.0 -2.9 -31.8 0.0 111.9 -18.0 -6.4 -2.0 -24.4 0.0 0.0 -46.0 0.0 0.0 -46.0 0.0 41.5 93.9

Balance sheet Shareholders cash Cash on trust Trade debtors Inventory Other current assets Goodwill Other intangible assets Fixed assets Other assets Total assets Short-term borrowings Trade payables Long-term borrowings Provisions Other liabilities Total liabilities Share capital Other reserves Retained earnings Other equity Total equity Minority interest Total shareholders' equity Total liabilities & SE

FY15A 14.0 26.7 153.4 0.0 4.6 215.6 22.4 3.7 0.1 440.4 0.0 178.7 0.0 2.0 23.8 204.5 161.7 21.6 40.2 0.0 223.5 12.4 235.9 440.4

FY16A 47.3 33.8 168.1 0.0 4.9 280.1 28.0 5.4 2.4 570.1 14.3 230.9 22.8 4.7 25.8 298.6 175.2 17.8 63.8 0.0 256.8 14.8 271.6 570.1

FY17A 49.2 30.0 201.2 0.0 4.5 393.2 47.8 5.3 9.0 740.2 18.1 257.9 27.3 2.7 32.8 338.8 281.8 13.5 90.8 0.0 386.2 15.2 401.4 740.2

FY18F 61.5 39.0 237.7 0.0 4.5 422.2 45.2 18.8 9.0 837.9 18.2 304.6 27.3 2.7 32.8 385.5 288.3 13.5 132.0 0.0 433.9 18.6 452.5 837.9

FY19F 87.0 55.0 265.6 0.0 4.5 426.6 42.1 33.3 9.0 923.1 18.2 332.5 27.3 2.7 32.8 413.3 294.8 13.5 179.3 0.0 487.6 22.2 509.8 923.1

Operating performance Revenue/TTV margin (%) EBITDA margin (%) EBIT margin (%) Net profit margin (%) Return on net assets (%) Net debt (A$m) Net debt/equity (%) Net interest/EBIT cover (x) Invested capital ROIC (%) Cash flow conversion Tax rate

FY15A FY16A 7.4 7.3 24.8 26.5 21.0 22.4 14.0 15.8 17.6 21.5 -14.0 -10.2 -5.9 -3.7 48.5 35.3 221.9 261.4 18.7 22.4 67.0% 121.0% 25.4% 21.0%

FY17A FY18F FY19F 7.8 8.1 8.2 30.4 32.5 33.7 25.4 28.1 30.3 17.2 19.7 21.4 20.5 24.3 25.8 -3.8 -16.1 -41.6 -0.9 -3.6 -8.2 25.4 37.0 45.3 397.6 436.4 468.2 20.7 25.2 28.1 92.5% 108.0% 100.0% 25.2% 24.8% 24.8%

FY20F 5736.4 472.6 164.0 3.0 161.0 12.0 149.0 2.8 146.2 35.2 3.8 107.2 111.2 0.0 107.2

Valuation details Share price (A$) DCF valuation WACC Multiples Enterprise value (A$m) EV/Sales (x) EV/EBITDA (x) EV/EBIT (x) Adjusted PE (x) PEG (x)

Per share data No. shares Adjusted EPS (cps) FY20F Dividend per share (c) 164.0 Dividend payout ratio (%) 0.0 Dividend yield (%) -2.8 -35.2 Business unit performance 0.0 TTV 126.0 Australia & NZ -20.0 North America -8.3 Asia -5.0 Europe -28.3 Total 0.0 Revenue 0.0 Australia & NZ -54.3 North America 0.0 Asia 0.0 Europe -54.3 Total 0.0 EBITDA 43.3 Australia & NZ 106.0 growth North America FY20F growth 114.4 Asia 71.0 growth 289.0 Europe 0.0 growth 4.5 Global overheads 429.9 growth 35.1 Total 50.3 9.0 % of EBITDA 1003.1 Australia & NZ 18.2 North America 355.9 Asia 27.3 Europe 2.7 32.8 Currency assumptions 436.7 AUD/USD 294.8 AUD/GBP 13.5 232.1 Growth ratios 0.0 TTV growth 540.4 Sales growth 26.0 Operating cost growth 566.4 EBITDA growth 1003.1 EBITA growth EBIT growth FY20F Underlying NPAT growth 8.2 Adjusted NPAT growth 34.7 Adjusted EPS growth 31.5 Underlying EPS growth 22.7 26.3 -69.0 -12.2 53.6 497.5 30.0 100.0% 24.1%

19.51 $23.00 10.00% FY16A 2060.0 7.9 29.8 35.2 40.5 1.5

FY17A 2066.4 6.4 21.0 25.1 30.3 0.9

FY18F 2054.1 5.3 16.2 18.7 23.8 0.9

FY19F 2028.6 4.7 13.8 15.4 21.0 1.6

FY20F 2001.2 4.2 12.2 13.4 18.7 1.5

FY16A 98.1 48.2 24.0 57.2% 1.2%

FY17A 105.2 64.5 30.0 55.8% 1.5%

FY18F 106.1 82.1 40.0 55.0% 2.0%

FY19F 106.4 92.8 48.2 55.0% 2.5%

FY20F 106.4 104.5 55.4 55.0% 2.8%

FY16A

FY17A

FY18F

FY19F

FY20F

848.6 867.0 1532.8 338.7 3587.1

962.3 1309.9 1301.1 588.6 4161.9

1125.9 1493.3 1255.6 971.2 4845.9

1249.7 1687.4 1274.4 1107.2 5318.7

1349.7 1856.2 1312.6 1217.9 5736.4

76.9 77.3 69.1 37.2 260.5

91.5 126.6 56.7 49.2 324.1

107.1 145.6 56.0 81.6 390.2

118.8 165.4 57.3 93.0 434.5

128.3 181.9 59.7 102.3 472.3

28.3 35.4% 21.2 83.7% 21.3 39.1% 6.1

69.0

36.3 28.5% 35.9 69.2% 18.1 -15.0% 18.4 200.2% -10.0 28.2% 98.6

45.1 24.0% 42.7 19.0% 18.4 2.0% 31.5 71.7% -10.8 8.0% 126.9

51.8 15.0% 50.2 17.5% 19.4 5.5% 36.9 16.9% -11.7 8.0% 146.6

57.9 11.7% 57.0 13.6% 20.7 6.4% 41.1 11.4% -12.6 8.0% 164.0

37% 28% 28% 8%

33% 33% 17% 17%

33% 31% 13% 23%

33% 32% 12% 23%

33% 32% 12% 23%

0.73 0.49

0.75 0.60

0.76 0.60

0.75 0.60

0.75 0.60

FY16A 35.1% 32.0% 29.1% 40.6% 40.5% 40.7% 49.4% 33.1% 27.7% 43.3%

FY17A 16.0% 24.3% 17.6% 42.9% 45.9% 41.0% 35.5% 41.3% 33.7% 28.2%

FY18F 16.4% 20.4% 16.8% 28.7% 28.6% 33.3% 37.8% 29.9% 27.3% 35.0%

FY19F 9.8% 11.3% 9.3% 15.5% 15.0% 19.7% 21.0% 13.4% 13.1% 20.6%

FY20F 7.9% 8.7% 7.0% 11.9% 12.5% 13.2% 14.9% 12.6% 12.6% 14.9%

-7.8

SOURCE: MORGANS RESEARCH, COMPANY

2

Hospitality│Australia│Equity research│December 5, 2017

Queensland Brisbane

New South Wales +61 7 3334 4888

Stockbroking, Corporate Advice, Wealth Management

Sydney

Victoria +61 2 9043 7900

Stockbroking, Corporate Advice, Wealth Management

Melbourne

Western Australia +61 3 9947 4111

Stockbroking, Corporate Advice, Wealth Management

West Perth

+61 8 6160 8700

Stockbroking, Corporate Advice, Wealth Management

Brisbane: Edward St

+61 7 3121 5677

Armidale

+61 2 6770 3300

Brighton

+61 3 9519 3555

Brisbane: Tynan Partners

+61 7 3152 0600

Ballina

+61 2 6686 4144

Camberwell

+61 3 9813 2945

Perth

+61 8 6462 1999

Brisbane: North Quay

+61 7 3245 5466

Balmain

+61 2 8755 3333

Domain

+61 3 9066 3200

Adelaide

+61 8 8464 5000

Bundaberg

+61 7 4153 1050

Bowral

+61 2 4851 5555

Geelong

+61 3 5222 5128

Norwood

+61 8 8461 2800

Cairns

+61 7 4222 0555

Chatswood

+61 2 8116 1700

Richmond

+61 3 9916 4000

Caloundra

+61 7 5491 5422

Coffs Harbour

+61 2 6651 5700

South Yarra

+61 3 8762 1400

Gladstone

+61 7 4972 8000

Gosford

+61 2 4325 0884

Southbank

+61 3 9037 9444

Gold Coast

+61 7 5581 5777

Hurstville

+61 2 9570 5755

Traralgon

+61 3 5176 6055

Ipswich/Springfield

+61 7 3202 3995

Merimbula

+61 2 6495 2869

Warrnambool

+61 3 5559 1500

Kedron

+61 7 3350 9000

Neutral Bay

+61 2 8969 7500

Mackay

+61 7 4957 3033

Newcastle

+61 2 4926 4044

Milton

+61 7 3114 8600

Newport

+61 2 9998 4200

Australian Capital Territory

Noosa

+61 7 5449 9511

Orange

+61 2 6361 9166

Canberra

Redcliffe

+61 7 3897 3999

Port Macquarie

+61 2 6583 1735

Rockhampton

+61 7 4922 5855

Scone

+61 2 6544 3144

Northern Territory

Spring Hill

+61 7 3833 9333

Sydney: Level 7 Currency House

+61 2 8216 5111

Darwin

Sunshine Coast

+61 7 5479 2757

Sydney: Grosvenor Place

+61 2 8215 5000

Tasmania

Toowoomba

+61 7 4639 1277

Sydney Reynolds Securities

+61 2 9373 4452

Townsville

+61 7 4725 5787

Wollongong

+61 2 4227 3022

South Australia

Hobart

+61 2 6232 4999

+61 8 8981 9555

+61 3 6236 9000

Disclaimer The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual’s relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so. Those acting upon such information without advice do so entirely at their own risk. This report was prepared as private communication to clients of Morgans and is not intended for public circulation, publication or for use by any third party. The contents of this report may not be reproduced in whole or in part without the prior written consent of Morgans. While this report is based on information from sources which Morgans believes are reliable, its accuracy and completeness cannot be guaranteed. Any opinions expressed reflect Morgans judgement at this date and are subject to change. Morgans is under no obligation to provide revised assessments in the event of changed circumstances. This report does not constitute an offer or invitation to purchase any securities and should not be relied upon in connection with any contract or commitment whatsoever.

Disclosure of interest Morgans may from time to time hold an interest in any security referred to in this report and may, as principal or agent, sell such interests. Morgans may previously have acted as manager or co-manager of a public offering of any such securities. Morgans affiliates may provide or have provided banking services or corporate finance to the companies referred to in the report. The knowledge of affiliates concerning such services may not be reflected in this report. Morgans advises that it may earn brokerage, commissions, fees or other benefits and advantages, direct or indirect, in connection with the making of a recommendation or a dealing by a client in these securities. Some or all of Morgans Authorised Representatives may be remunerated wholly or partly by way of commission.

Regulatory disclosures Analyst owns shares in the following mentioned company(ies): Corporate Travel Management Morgans Corporate Limited is Lead Manager and Underwriter to the rights issue for Corporate Travel Management Limited and may receive fees in this regard.

Recommendation structure For a full explanation of the recommendation structure, refer to our website at http://www.morgans.com.au/research_disclaimer

Research team For analyst qualifications and experience, refer to our website at http://www.morgans.com.au/research-and-markets/our-research-team

Stocks under coverage For a full list of stocks under coverage, refer to our website at http://www.morgans.com.au/research-and-markets/company-analysis/ASX100-Companies-under-coverage and http://www.morgans.com.au/research-and-markets/company-analysis/EX-100-Companies-under-coverage

Stock selection process For an overview on the stock selection process, refer to our website at http://www.morgans.com.au/research-and-markets/company-analysis

www.morgans.com.au If you no longer wish to receive Morgans publications please contact your local Morgans branch or write to GPO Box 202 Brisbane QLD 4001 and include your account details. 06.07.17

3