Corporate Travel Management says a short seller that have been stalking it since late 2018 is now trying to exploit the coronavirus outbreak and an associated travel downturn in its war with the bookings group.
Sydney-based hedge fund VGI Partners renewed its attack on CTM on Sunday, raising issues about the travel group's half-year result, which prompted a share price dive on Monday morning.
Corporate Travel Management chief executive Jamie Pherous. The group said short sellers were trying to use the coronvirus outbreak. Credit: Louie Douvis
CTM's shares fell as much as 7 per cent in early trade but recovered to close down 3 per cent at $13.50.
VGI first took aim at the ASX-listed CTM in October 2018 with a bombshell report that questioned its accounts and disclosure and accused the $1.4 billion group of overstating the true scale of its business.
CTM on Monday said it had addressed all issues raised by VGI during its first-half result, which revealed an 8 per cent fall in net profit after tax.
"The timing of the release of VGI’s latest report appears to be an attempt to use the current uncertainty caused by COVID-19 to promote further market uncertainty with respect to CTM," the company said in a statement released to the ASX.
Like most travel-related stocks, CTM's shares have fallen sharply as the coronavirus outbreak spread and global travel demand seized up. The stock has fallen 39 per cent since January 20.
VGI said it identified several new "red flags" in CTM's half-year accounts, including that volume-based commissions from airlines and hotels were in decline and could fall further due to the coronavirus outbreak.
CTM's free cash flows to equity was negative in the first half, a sign of a "deteriorating business", while CTM blamed a full-year guidance downgrade on the coronavirus when it likely needed to cut its outlook anyway, VGI said.
VGI said CTM boosted its reported earnings by booking costs, such as wages, as "software assets", which had grown from $3.6 million to $35 million over the past four years.
CTM said it was deliberately moving away from a volume-based commissions to "de-risk" its Asian business, that its operating cash flow was positive in the first half, and that its investment in software was a "key point of differentiation".
VGI told its clients in a letter, seen by The Age and SMH, that even though its shares had slid 48 per cent since it first took aim at the company, the market continued to overestimate CTM's ability to deliver profitable growth and that its thesis was related to "accounting irregularities" unrelated to the coronavirus.
VGI held 2.5 million CTM shares in a short position in 2018 but has not updated that figure. The proportion of CTM's shares held in short positions increased from 7 per cent on February 18 to 9 per cent a week later, according to ShortMan.com.