The ASX travel sector has experienced significant fluctuations in recent years, primarily driven by the impacts of the COVID-19 pandemic and shifts in global economic trends. This report delves into the current outlook for two major players in the sector: Corporate Travel Management Ltd (ASX: CTD) and Flight Centre Travel Group Ltd (ASX: FLT), highlighting potential opportunities and challenges.
Corporate Travel Management (ASX: CTD)
Performance Overview:
- Recent Decline: CTD shares have suffered a 28% decline this year, sparking concerns among investors. However, recent movements have been more positive, with the stock recovering nearly 12% over the past month to reach three-month highs.
- Analyst Insights: Rikki Bannan from IFM Investors, speaking at the Sohn conference, identified CTD as a compelling buy, particularly within the small-cap sector where mispriced opportunities are more prevalent. Bannan highlighted that despite missing earnings expectations three times over the last 18 months (leading to a 40% rebase of expectations), the outlook is not as dire as perceived.
- Growth Projections: The analysis suggests that CTD is capable of achieving 15% annual revenue growth over the next three years, without considering potential acquisitions. The company’s solid balance sheet positions it well for strategic expansions.
- Market Drivers: Lower airfare costs are expected to support an uptick in corporate travel, potentially stimulating demand and enhancing profitability.
Market Concerns:
Despite optimism from some quarters, there are reservations. Morgans, for instance, recently downgraded CTD from ‘buy’ to ‘hold’, citing potential revenue impacts from reduced travel spending by major clients like the UK government. The revised price target was set at $13.50, down from $15.95.
While there are mixed opinions, the consensus leans towards a positive long-term outlook, contingent on CTD’s ability to execute effectively and adapt to changing market conditions.
Flight Centre Travel Group (ASX: FLT)
Performance Overview:
- Stock Trends: FLT has experienced a 29% fall in share price throughout October due to a softer-than-expected Q1 FY25 update. The decline has returned the stock to levels last seen in December 2020.
- Recent Quarter Performance: Despite the challenges, FLT reported marginal improvements over Q1 FY24 across key metrics. Notably, it achieved a 2% increase in profit before tax (PBT) to $65.5 million, maintaining a stable profit margin of 1.1%.
- October Rebound: Encouragingly, October brought signs of recovery, with a 6% increase in total transaction value (TTV) and a 30% rise in underlying PBT. The corporate segment achieved record monthly TTV and revenue, especially strong in the Australian market.
- Fund Manager Perspective: L1 Capital has identified FLT as a potential turnaround opportunity. While near-term volatility is anticipated due to moderating travel activity, the fund manager noted that the company is now more efficient and productive compared to pre-pandemic levels. The strategic closure of over half of its legacy retail stores and a pivot towards luxury travel and independent store networks are seen as positive moves.
Challenges:
FLT continues to navigate airfare price deflation, which has impacted TTV growth despite solid volume growth (15% in Q1 FY25).
The leisure segment’s recovery remains uncertain, contingent on broader economic conditions and consumer confidence.
Industry Takeaways
The ASX travel sector remains a landscape of both risk and opportunity. For Corporate Travel Management, strong financial positioning and potential for growth make it attractive, though risks tied to key client expenditures remain. Flight Centre, on the other hand, has shown resilience through structural optimisations and a strong rebound in October, positioning it as a turnaround candidate despite headwinds from price deflation and shifting travel behaviors.
Investor Guidance: Both stocks present unique investment theses:
- CTD appeals to those seeking potential high growth driven by corporate travel recovery and strategic acquisitions.
- FLT may attract investors looking for a recovery story with an emphasis on long-term operational efficiency and targeted growth strategies.
As always, the execution by these companies will be the key determinant of their future success in a still-recovering global travel landscape.
