Travel stocks running on fumes

On Monday, shares in Corporate Travel opened at $20.20 on a market value of about $2.56 billion, which is around 25 per cent higher than its value at the end of 2019.

The irrational exuberance running contrary to insiders’ attitudes is hard to explain, but is probably attributable to the psychological relief of vaccines and cheap money as the architects of wild sharemarket valuations over the past six months.

Money trail

After the ecommerce bubble burst last week on the back of a series of weaker-than-expected trading updates, investors saw how tracking insider sales over the pandemic gave insight into management teams’ views on their own valuations or perhaps, more accurately, over-valuations.

In August, Kogan co-founders Ruslan Kogan and David Shafer sold $163 million in shares at an average price of $21.60. On Monday, the shares traded more than 50 per cent lower at $10.36. In October, Redbubble founder and then chief executive Martin Hosking sold 6 million shares for 33.1 million at $5.52, versus today’s price of $4.10.

At Temple & Webster, chairman Stephen Heath offloaded 150,00 shares – 81.5 per cent of his holdings – for $1.4 million in an on-market trade at about $9.25 per share last August, with chief executive Mark Coulter dumping 2.1 million shares for $19.7 million.

Notably, at Corporate Travel neither Pherous nor the group’s chief operating officer Laura Ruffles appeared to see much value in the shares at $13.50 after declining to contribute any funds to a $375 million October capital raising.

The raising grew the share count by about 25 per cent to 127 million. In return it snapped up US travel group Travel and Transport for about $275 million, paid about $32 million in integration and capital raising costs, and retained $73 million to strengthen a balance sheet under pressure. Over the past half, Corporate Travel’s revenue fell 75 per cent as it swung to a net loss before tax of $47.5 million, versus a profit before tax of $46.4 million in the prior corresponding half.

Whether today’s travel sector turns out to be a COVID-19 muddled bubble like the ecommerce sector is yet to be seen. But some professional investors are already betting heavily on share price falls ahead.

Webjet had 9.8 per cent of its shares shorted as at April 19, with Flight Centre at 9.2 per cent. Unlike Corporate Travel, both still carry dangerous amounts of debt and have leisure travel businesses threatened by the incompatibility of Australia’s zero-COVID-19 policy and quarantine free travel.

The corporate travel sector is also arguably facing a permanent impairment to activity from pre-pandemic levels (similar to office-based workplaces) as health risks fail to recede and collaborative ways of working around Zoom, Microsoft Teams, and Slack are adopted.

All this suggests pre-pandemic valuations in a post-pandemic world could spell trouble for travel and tourism investors. The next big hurdle will be August’s full-year reports with investors likely to seize on guidance and scour liquidity runways with one eye on the potential for further capital raisings.

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