Corporate Travel Management surprises market with underlying profit

After Flight Centre (ASX: FLT) last week reported a loss equivalent to around 39 per cent of its market capitalisation, Corporate Travel Management (ASX: CTD) has today reported a marginal loss while recent monthly revenue is tracking well above expectations.

The group reported a statutory loss of $8.2 million for FY20, which is less than 1 per cent of that reported by its Brisbane-based peer FLT. 

Corporate Travel Management would have been in the black if it weren't for one-off costs, and the company does not expect any items of this nature in the current financial year.

Non-recurring costs after tax reached $33.8 million and mostly stemmed from COVID-19 related issues such as $15.1 million paid out in redundancies, bad and doubtful debts of $13 million from market impacts and supplier failures including problems with Virgin Australia, and $9.1 million in the amortisation of intangible assets due to lower client demand.

CTM's underlying net profit after tax (NPAT) of $32 million, a Q4 average monthly revenue rate of $11.5 million compared to expectations in May of $2-5 million and 97 per cent client retention all helped shares take off this morning by 9.3 per cent to $13.27 each.

As a recipient of the JobKeeper wage subsidy, the group has acted in the spirit of the scheme and cancelled its dividends.

"Revenue has been ahead of our May market update expectations with high exposure to domestic essential travel," says managing director Jamie Pherous (pictured).

"This coupled with our flexible business model and rapid response to COVID-19 enabled CTM to deliver full-year results that exceeded our market update provided in May.

"Because we moved early and rapidly with redundancies and other cost reductions, we have been able to stem our losses very quickly, and do not expect any further significant one-off costs in the current FY21 financial year."

Pherous says CTM's business model positions the company for a "rapid return to profitability" with only a marginal increase in domestic travel activity from current levels.

In the fourth quarter the company recorded an average a monthly EBITDA loss of $3 million, but as of Monday 17 August it had $55 million cash in the bank, zero debt and undrawn committed facilities of $180 million.

That monthly loss was trimmed back to $2.2 million in July, while its European and Australia/NZ businesses broke even.

The group highlights client activity has begun to recover from a low point in April. Monthly revenue is typically lowest in July, reflecting the northern summer vacation.

However, bookings in July were greater than in June, suggesting a broad-based recovery in corporate travel activity is underway, especially in the northern hemisphere as corporate clients return to work in August. 

The group is also looking to potentially make acquisitions as an extended period of no international travel is likely to create opportunities for industry consolidation.

Updated at 11:29am AEST on 19 August 2020.