Hedge fund VGI Partners beefs-up bet against Corporate Travel Management

Hedge fund VGI Partners says it has beefed up its bet against Corporate Travel Management, increasing its short position by 23 per cent.

VGI partner Douglas Tynan. Picture: AAP

Hedge fund VGI Partners says it has beefed up its bet against Corporate Travel Management, increasing its short position by 23 per cent and flagging more may be on the way.

VGI made the disclosure in a 52-page letter to its investors, sent this evening, that also responds to Corporate Travel’s rebuttal of a devastating report by the hedge fund that last week carved 27 per cent from the company’s share price.

The hedge fund now has “serious additional concerns” about Corporate Travel, it told investors.

“VGI Partners is now short 2,501,286 shares in Corporate Travel, with significant capacity to increase our short position in the future,” the fund said.

“We believe it is necessary that we disclose this detail as we are aware of market rumours that VGI Partners covered its position last week.

“This speculation has no basis in fact.”

The fund said Corporate Travel’s 14-page response to its 156-page report “failed to adequately address the substance of our report”.

VGI also shot back at Corporate Travel’s claim that it did not engage with the company, sending investors email correspondence from last month between VGI partner Douglas Tynan and Corporate Travel chief financial officer Steve Fleming.

“The Corporate Travel response has included efforts to question our analysis and shift the narrative,” VGI said.

“In taking this path Corporate Travel has, in our opinion, given rise to serious additional concerns.”

VGI said it stood by its central claim — one of 20 “red flags” raised in its initial report — that Corporate Travel had “supernormal profitability” and its allegation company profitability may have been boosted by a series of acquisitions over the past 10 years.

It said Corporate Travel tied to “tap-dance out of trouble” over allegations it made that it had “ghost” offices in Europe and the US, “further misleading investors”.

It said chairman Tony Bellas made “simply false” comments last week by saying Corporate Travel removed an old Glasgow office from its website in April.

And his statement last week that Corporate Travel had 73 employees at its new Glasgow office implied they each had 5.9sq m of space, it said.

“This compares unfavourably with the minimum area of a Scottish standard single prison cell of 7 square metres (excluding the toilet cubicle).”

“When we visited this office on 27 September 2018, we observed only six employees.

“On 2 November 2018, we observed roughly 20 employees.

“Where are the other 53 employees?”

VGI also said visits to “big offices” claimed by the company in Boston, Seattle and Denver revealed each had “only a handful of employees in normal business hours”.

It said Corporate Travel never made contact with New York University professor Aswath Damodaran, who The Australian has independently confirmed was the source of figures used to calculate whether goodwill should be written down — an issue about which VGI raised questions in its initial report.

VGI asked: “Was the ‘independent third party’ from whom Corporate Travel ‘sourced’ the ‘cost of equity’ a public website, regularly used for undergraduate university assignments, and run by an individual who has never heard of Corporate Travel Management?”

The fund said it used Prof Damodaran’s data “data to do the math ourselves and can’t get close to the discount rate reductions that appear in the Corporate Travel accounts”.

It said Corporate Travel had “effectively confirmed” its allegation that cash balances declared in its accounts were higher than the average during the year.

VGI also queried Corporate Travel’s statement that a change to revenue recognition that brought forward commission income only raised revenue by $500,000 when a change in the other direction in 2014 had “a huge impact”.

It said Corporate Travel’s explanation that a 9 per cent decline in cash receipts last year was due to “timing” and growth in payables was unconvincing, asking: “How can cash receipts decline -9 per cent year-on-year in a period when reported revenue grew +14 per cent year-on-year?”

“We believe Corporate Travel owes investors a straightforward answer to this simple question.”

A spokesman for the travel group said: “CTM was made aware of the VGI statement late Monday evening and CTM is reviewing the statement and will respond in due course.”