Investments in the Travel & Tourism sector are generally considered cyclical. For this reason we try to focus on stocks with a diversified business model across multiple travel businesses with exposure to global growth opportunities.
Our top three stocks picks in the Travel & Tourism sector are Corporate Travel and HelloWorld Travel.
CORPORATE TRAVEL (CTD)
Corporate Travel (CTD) CTD is a corporate travel service provider with operations in Australia & New Zealand, North America, the UK and Asia. CTD’s business model revolves around its customer value proposition which combines superior client service and technology solutions to deliver return on investment and cost savings to corporate clients. In our view, we see CTD continuing to leverage this value proposition, further increasing its market share both domestically and internationally. We continue to back CTD’s experienced management team and refer to the strong return on capital metrics when assessing the quality of the business. Management have already guided to a stronger second half in FY20 – suggesting a weaker first half. We do however expect a number of key tailwinds to positively contribute to FY20 (FX/M&A/cost-synergies) and offset low expectations for organic growth to reach market expectations, which are now set at the lower end of guidance.
HELLOWORD TRAVEL (HLO)
HLO is an Australian based travel distribution company comprising retail travel businesses, destination management services (inbound), air ticket consolidation, wholesale, corporate and online operations. HLO is well placed to generate earnings growth on the back of merger synergies, cost savings and further acquisitions. Despite challenging macro conditions, momentum across HLO’s portfolio has been relatively resilient as highlighted by a strong Q1 trading update which included Total Transaction Value (TTV) growth of 10.4% (9.2% organic growth) and EBITDA growth of 7.7%. We remain confident in management’s ability to execute on its growth strategy and with forecast EPS CAGR of c.16% over the forecast period and a forward P/E ratio of c.12x earnings, HLO presents a compelling buying opportunity with limited downside risk.