The COVID-19 pandemic smashed the earnings of travel businesses across the globe. But here in Australia, Corporate Travel Management (ASX:CTD) not only withstood the tourism downturn – it was able to grow. With its share price still below the pre-COVID-19 level, and the business in great shape, Corporate Travel Management is a quality company with potential for much larger earnings growth in the years ahead.

The Australian Eagle investment team has multiple ways to determine the quality of a business. In the case of Corporate Travel Management which operates in an established industry, assessing how the company managed their way through a crisis, forms a significant part of our determination of the stock’s qualitative rating. As such, the past 3 years have been a well-documented crisis for the multi trillion-dollar global travel industry. During this uncertain period, management was able to operate the business without additional finance, remaining debt-free since 2020. Compared with its listed peers, the company stood out as the only travel business to issue equity to finance an expansion and not raise capital purely for survival. The earnings accretive acquisition of a similar sized competitor during a difficult time significantly grew the size and capabilities of the existing group.    

During a period of industry-wide hardship, Corporate Travel Management acquired Travel & Transport and other smaller companies, thereby extending its geographic reach, and expanding earnings before interest, taxes, depreciation, and amortization (EBITDA) under normal trading conditions by about 65 per cent beyond pre COVID-19 levels. It is during a challenging period such as this, that quality companies seek to utilise their competitive advantage to enter the subsequent recovery phase with a larger market position. This, along with indications of the accelerating speed of return of business travellers firstly in New Zealand and subsequently in other geographies, provided the trigger that confirmed Corporate Travel Management’s potential for much larger earnings growth in the coming years.

With the addition of its recent acquisitions, the company has forecast that upon full resumption of travel, EBITDA should be about $265 million versus $165 million pre-pandemic. Despite the expanded customer base and market share, the share price remains 30 per cent below pre-COVID-19 levels while competitor enterprise values are at or above pre COVID-19 levels. The most recent trading update in October 2022 highlighted strong client retention, record level new client wins and continued EBITDA positive group operations. Recent concerns over tough trading conditions should pale in comparison to ones experienced during COVID-19 and are only likely to delay, not extinguish, a resumption to full earnings potential.

The Montgomery Funds own shares in Corporate Travel Management. This article was prepared 16 January 2023 with the information we have today, and our view may change. It does not constitute formal advice or professional investment advice. If you wish to trade Corporate Travel Management you should seek financial advice.