Stocks’ Details

Corporate Travel Management Limited

Chairman’s Address to Shareholders: Corporate Travel Management Limited (ASX: CTD) is a provider of travel management services to the corporate market. The market capitalisation of the company stood at A$1.96 Bn as on 6^th November 2019. Recently, the company has published a presentation, wherein, it stated that the latest Qantas NDC offer provides CTD with airfare pricing that is more competitive than it has seen under its standard agreement. The Chairman of the company recently addressed shareholders and stated that it achieved net profit after tax amounting to $86.2 Mn for FY19. Excluding one-off or non-recurring items and non-cash amortisation of client intangibles (both tax effected), the company’s underlying NPAT amounted to $96.9 million. This implies a rise of 13% over the previous year. The Chairman added that the company witnessed solid results considering that the corporate travel activity was weighed by major headwinds in its key markets of Europe, North America and Asia.


Financial Highlights (Source: Company Reports)

Confirmation of Guidance:The company has confirmed the guidance of underlying EBITDA for FY20, which is expected to be in the range of $165 Mn-175 Mn, reflecting the growth of around 10%-16.5% on the previous year. CTD added that the global overhead costs would have a stepped change as a result of building out a team to best support the business strategy over the longer term, which includes additional group Board and executive costs, consulting, and insurance costs. The company anticipates group costs to be relatively flat in the upcoming years. 

Stock Recommendation:With respect to USA region, the company anticipates EBITDA to be marginally down for 1H FY20, however, it forecast a stronger 2H FY20 with client wins from technology and a planned reduction in costs to translate into higher comparative full-year result. On the valuation front, the stock of CTD is trading at a price to cash flow per share multiple of 14.66x in comparison to the industry average of 19.49x.  Net margin of the company stood at 20% in FY19 against the industry median of 8.9%. This implies that the company has better capabilities to convert its top-line into the bottom-line as compared to its peer group. Return on equity of CTD stood at 16.9% in comparison to the industry median of 11.5%. As per ASX, 52-week trading range of the stock stands at $17.30 to $29.60 and currently, the stock is trading at the lower band of its 52-week trading range with PE multiple of 22.58x and an annual dividend yield of 2.23%. Hence, in view of aforesaid fact and current trading levels, we give a "Hold" recommendation on the stock at the current market price of A$19.760 per share, up 9.961% on 6th November 2019, owing to the release related to EBITDA guidance for FY20.
 

Bapcor Limited

The Signing of Agreement: Bapcor Limited (ASX: BAP) is involved in the distribution of automotive aftermarket parts. It has a market capitalisation of A$2.09 Bn as on 6^th November 2019. Recently, the company announced that it has inked agreements to purchase Truckline and Diesel Drive. It added that Truckline is a Heavy commercial truck spare parts business having 22 branches throughout Australia. Diesel Drive is a business which has specialisation in the sale of Japanese commercial truck spare parts. The combined purchase price stood at around $48 Mn, which would be financed via existing debt facilities. In the first full year of operation, i.e. FY2021, the businesses are anticipated to achieve a return on investment of a minimum 15% and enhance positively EPS.

 
Financial Highlights (Source: Company Reports)

What to Expect:The company remains optimistic regarding the fundamentals of the automotive aftermarket and it is excited about many opportunities of the business including further network growth, procurement and supply chain efficiencies and own brand growth. It added that the market fundamentals and opportunities would continue to fuel profit growth in the future and BAP is anticipating growing its proforma NPAT by mid to high single digits in FY20. BAP is now uniquely placed to provide aftermarket parts for all forms of road transport. BAP’s strategy is to continue to expand its business reach and product offerings.

Stock Recommendation: Current ratio of the company stood at 2.29x in FY19, reflecting a YoY growth of 16.9%. This reflects that the company is in a decent position to address its short-term obligations.  Gross margin and EBITDA margin stood at 46.9% and 12.6% in FY19, up 0.9% and 0.7% on a YoY basis, respectively. On the stock’s performance front, BAP delivered notable returns of 19.19% and 35.99% in the time frame of three months and six months, respectively. Therefore, in the light of recent acquisition agreement, which can provide decent growth to the business, decent outlook, returns to shareholders and strategy to expand the business reach, we give a “Hold” recommendation on the stock at the current market price of A$7.200 per share, down 1.774% on 6^th November 2019.

Webjet Limited

Focus on Retaining Cash for Future Growth Opportunities: Webjet Limited (ASX: WEB) provides a full range of online travel booking service for flights, hotels, car hire, cruises and tours. The company, in its Goldman Sachs presentation, stated that WebBeds is currently the largest business with Total Transactional Value (TTV) and EBITDA amounting to $2.2 billion and $67.3 million, respectively in FY19. In another update, the company announced that it would be conducting its 2019 Annual General Meeting on 20^th November 2019. The following picture provides an overview of the EBITDA:


EBITDA by Business (Source: Company Reports)

Future Aspects:Withrespect to WebBeds, the company has been witnessing significant opportunities for the profitable growth in all markets, and it is targeting opportunities to deliver 8/4/4 (8% revenue/TTV and 4% costs/TTV to drive 4% EBITDA/TTV) by FY 2022. With regards to the Online Republic, it was mentioned that consistent with the FY 2019 strategy, it would continue to focus towards higher TTV margins and lower acquisition costs.

Stock Recommendation:  The company declared a final dividend of 13.5 cents per share and its full-year dividend is up 10%. The company stated that increase in future dividends is expected to be lower than EPS growth in order to retain cash for future growth opportunities. On the valuation front, the stock of WEB is trading at a price to cash flow multiple of 42.72x as compared to the industry average of 43.96x. As per ASX, the stock of ASX is trading towards its 52-week lower levels of $9.980 with P/E multiple of 24.57x and an annual dividend yield of 1.9%. When it comes to past performance, the stock has delivered a return of 9.07% on a YTD basis. Thus, taking into account the business growth in FY19, bright business prospects, and current trading levels, we give a “Buy” recommendation on the stock at the current market price of A$11.610 per share, up 0.519% as on 06 November 2019.

Flight Centre Travel Group Limited

Decent Growth in TTV:Flight Centre Travel Group Limited (ASX: FLT) is into travel retailing in the leisure and corporate travel sectors, plus in-destination travel experience, which include tour operators, hotel management, destination management companies and wholesaling. The Managing Director of the company in a presentation at the Morgans Queensland conference stated that online leisure sales in the country had doubled during Q1 FY20, despite a relatively challenging trading climate. It was also mentioned that flightcentre.com.au has continued its trajectory since online booking fees were removed late in FY19 and reported the growth of 65% in TTV of Q1 FY20.


TTV Growth (Source: Company Reports)

What to Expect:The company is focused towards FY 2022 transformation program targets, and it is making reasonable progress towards TTV and cost margin goals. The company added that, while TTV was increasing solidly early in FY 2020, the underlying profit would be below the PCP during H1 and is likely to be heavily weighted towards 2H FY 2020.

Stock Recommendation:  Return on equity of the company stood at 17.8% in FY19 as compared to the industry median of 11.5%, demonstrating the company’s decent returns to shareholders. Current ratio of the company stood at 1.31x in FY19 against the industry median of 1.08x. This implies that the company is in a decent position to address its short-term obligation as compared to the broader industry. On the valuation front, the stock has EV to sales multiple of 1.0x in comparison to the industry median of 2.2x on TTM basis. The stock has EV to EBITDA multiple of 6.9x against the industry median of 10.5x on TTM basis. Thus, it can be said that the stock of FLT is undervalued at current juncture. On the stock’s performance front, it produced returns of 11.48% in the last six months and 5.27% on YTD basis. Hence, considering the decent set of numbers in Q1 FY20, forward growth strategies, valuation parameters, decent liquidity position, etc., we give a “Buy” recommendation on the stock at the current market price of A$42.390 per share, down 0.54% on 6^th November 2019.

 
Comparative Price Chart (Source: Thomson Reuters)

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