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Corporate Travel Management Ltd and Shine Corporate - Is it good to buy these?

Oct 12, 2015 | Team Kalkine
Corporate Travel Management Ltd and Shine Corporate - Is it good to buy these?

Corporate Travel Management Ltd (ASX: CTD)


 
The company has reported its results for FY 2015 and the highlights are briefly described below. Total Transaction Value (TTV) was up 92% to $ 2.65 billion and revenue and other income was up 79% to $ 197.9 million. The underlying EBITDA was up 70% to $ 49.1 million, underlying NPAT by 76% to $ 30.4 million and statutory NPAT by 75% to $ 29.1 million. Statutory EPS was up by 48% to 27.9 cents per share and the final dividend payable was up by 33% percent to 10 cents per share fully franked (full year dividend was 16 cents per share). The guidance for FY 2016 is an underlying EBITDA range of $ 61.3 million to $ 63.8 million working out to a growth of 25% to 30%. Managing Director Jamie Pherous said that the company had delivered a significant increase in growth on the top line despite challenging conditions in the global economy. Every region delivered a record profit and the results validate the company’s strategy for global integration by adding value to the business by focusing on integrating business culture and technology. Business expansion has occurred through increasing market share and organic growth contributed to more than half of the top line growth reflecting the success in winning and retaining customers including global businesses who recognise the company’s international capabilities.

 
EPS Growth (Source: Company Reports)

The ANZ region delivered 19.5% growth with an EBITDA of $ 25.7 million through organic growth supported by internal productivity gains. The strong organic growth continues with TTV up 13.7% and significant client wins despite difficult domestic economic conditions. Revenue in North America increased by 107.9% to $ 47.6 million resulting in a 17.3% organic growth in profits. Yields remained steady resulting in a 79.3% growth in underlying EBITDA to $ 9.5 million. There is a significant increase in the pipeline of new clients and the finalisation of integration is expected to deliver profit growth of approximately 40% in FY 2016. In Asia, underlying EBITDA was up 200% over the previous year delivering the largest increase in EBITDA for the group. There were strong growth in corporate and wholesale business outperforming the competition and profit growth in FY 2016 is expected to be 25%. In Europe, the regional performance of six months following the acquisition is in line with expectations and expected to deliver EBITDA of $ 2.9 million. The profit for FY 2016 is expected to increase by 10% to 15%.
 

Growth Profile (Source: Company Reports)

The market does not particularly like companies that grow by acquisition and this company which is active in acquisitions has executed several of them in the past three years. However, this company has distinguished itself by building on and improving its existing businesses. Despite the promising growth, we think that this company is currently expensive based on a high P/E ratio of about 38 and dividend yield of about 1.5% and we do not recommend an investment at this point in time at the current price of $10.54.
 

CTD Daily Chart (Source: Thomson Reuters)

Shine Corporate Ltd (ASX: SHJ)


 
This is an Australian litigation company which has significant interests in the lucrative personal injury market. In the financial results for FY 2015, the company reported revenues up 30.4% to $ 150.6 million, statutory EBITDA up by 28.7% to $ 44 million, normalised EBITDA up by 32.7% to $ 45.4 million, a normalised EBITDA margin up from 29.6% to 30.1% and normalised NPAT up by 37.8% to $ 30.6 million. Normalised net operating cash flow grew by 0.9% to $ 11.5 million and the EPS grew by 20.3% to 17.2 cents per share. The dividend grew by 7.7% to 3.75 cents per share fully franked. Managing Director Simon Morrison said that the performance reflected organic growth as well as the contribution from the emerging practice areas and from acquisitions. Emerging practice areas recorded growth of 90.8% to $ 33.7 million and the acquisitions completed in FY 2015 have been performing to expectations. He said that the plaintiff litigation market is continuing to consolidate and the company will continue to seek opportunities for growth by acquisition as well as other opportunities in emerging practice areas and organic growth. Acquisitions will be sought when they are culturally aligned, well-managed, provide optimal potential synergies and are consistent with the diversification strategy both geographically and sector-wise. The directors also provided guidance for FY 2016 earnings of between $ 52 million and $ 56 million EBITDA.
 

Revenue and EBITDA (Source: Company Reports)

Operating cash flow for the year was $ 13 million compared to $ 10.5 million in the previous year. The normalised net operating cash flow of $ 11.5 million ($ 11.4 million) amounted to 37% of normalised NPAT. Net WIP grew by 39.3% or $ 53.7 million to touch $ 190.7 million and typical PI cases involve a timeframe of 18 months whereas EPA cases can take as long as 3 years to 5 years. The growth in the load of PI cases and the higher relative growth in EPA cases will require more working capital to support the longer time frames. The facilities in place to support growth include $ 5.5 million to support liquidity and $ 10.6 million to support acquisitions as on 27 August 2015. The management focus in FY 2016 will be to improve the speed and disbursement of funding which will directly support increased operating cash flows.
 

Financials (Source: Company Reports)

The acquisition strategy involved the acquisition of Bradley Bayly effective 1 June 2015 and completed on 14 August 2015, which significantly strengthens the presence in Western Australia. The focus is on diversity of practice areas and sources of revenue and their prospects in the pipeline. The company will continue to focus on damages based recoveries on what it calls its "inch wide mile deep" strategy to widen the geographical footprint, continue to grow in emerging practice areas and take advantage of its scalable model and systems. Payment will be made by a combination of debt, scrip and cash with risk being managed through earn-outs and deferred consideration. The company has also received a favourable ruling from the Australian Taxation Office which will generate income tax benefits worth $ 19.3 million.
 
We believe that the stock is undervalued at the current valuation and represents a buying opportunity. We therefore rate the stock as a Buy at the current price of $2.00.
 

SHJ Daily Chart (Source: Thomson Reuters)

Disclaimer
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people.Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376).The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation.Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product.The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd currently hold positions in:  BHP, BKY, KCN, PDN, and RIO. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.
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Kalkine is a trading name of Kalkine Pty Ltd ABN 34 154 808 312, which holds Australian Financial Services Licence No. 425376.




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