Hogg Robinson Group (HRG) has again delivered, with management confident that it should continue to brave headwinds to meet full-year expectations. Moreover, work on key initiatives continues apace, notably growth in managed travel and technology (Fraedom) as well as restructuring and cash generation. The financial position is “robust” (net debt/EBITDA of just 0.5x over the 12 months to September), allowing potentially lucrative investment and a progressive dividend policy (FY17e cover of almost 3x).
HRG is on course to meet current-year earnings expectations. While recent revenue and client travel transactions are not disclosed as previously, there should be no surprise at the reported second-half weakening in Travel Management, the company’s main profit source; our forecast is 7% lower constant currency revenue in H2 (down 4% in H1). Although partly a function of the trend to online self-booking by clients (49% to 51% in H1), revenue softness shows challenging conditions (we assume especially still in Australia and Norway), as well as aggressive competitor pricing. Confirmation of satisfactory restructuring progress suggests that HRG continues to cope with such weakness, as evident in impressive H1 margin gain.
Looking further ahead, we are encouraged by the prospect of HRG taking advantage of its financial flexibility and largely completed efficiency programme to make potentially transformative investment (eg “step-change the growth profile of Fraedom” and in Travel Management exploring new distribution initiatives and the provision of a new service model, as stated at H1). It is also well placed to address significant dividend, pension liability and 2018 refinancing opportunities.