Corporate Travel Managers has responded to a second attack from VGI Partners, who last week published an extensive report on the company, raising many “red flags”.
The embattled travel management company reiterated VGI’s substantial short position in CTM, meaning that it can only profit from its investment if there is a decline in CTM’s share price.
“VGI has significant vested interest in promoting market uncertainty with respect to CTM and in refusing to accept CTM’s comprehensive rebuttal of the claims made by VGI in relation to its business model, governance and finance reporting,” CTM said via a statement on the ASX.
“Page 50 of the recent VGI report states that ‘… the information contained in it is inherently biased towards VGI’s short position in Corporate Travel.'”
VGI’s initial report, which raised questions about the company’s accounts and the true scale of their business, saw CTM’s share price tumble by 27 per cent.
On Monday, VGI told its investors CTM’s detailed response to their report did not adequately address many of their concerns.
“Every one of the 20 red flags in our previous presentation continues to concern us,” VGI said.
“After carefully considering the company’s response, we have increased our short position.”
For those not familiar, short selling involves betting a company’s share price will fall below a certain price.
CTM said VGI’s conclusions lack a fundamental understanding of the corporate travel sector and CTM’s business model.
“CTM’s view is that VGI’s latest report raises no new substantive issues,” the company said.
“CTM’s response to VGI’s original report addressed all claims by VGI. CTM refers shareholders to its initial response and sees no need to comment further on many of the points on VGI’s latest report.”
VGI’s initial report raised concerns about “phantom offices” and “aggressive accounting”.
VGI said it visited CTM offices in Glasgow, Paris, Amsterdam, Stockholm and Switzerland and found no signs of activity.
The US offices were also empty or staffed with a skeleton crew, even though the US makes up one-third of CTM revenues.
The hedge fund claims their analysis is at odds with the “rich valuation that the market currently places on Corporate Travel”.
VGI said CTM’s price to earnings multiple was well above similar companies, at 28.6 times, compared to Flight Centre’s 15.8.
In fact, their metrics even exceeded the likes of Amazon and Apple, according to VGI.
“Is Corporate Travel the next FAANG (Facebook, Apple, Amazon, Netflix and Google) stock?,” VGI said.