Standing firm
Hogg Robinson (LONDON:HRG) is making good progress adjusting to a changing corporate travel market by addressing the cost base and strengthening its ability to serve the wider travel industry and expense sectors with an enhanced technology offering. Recent IMS confirmation of momentum after clear H215 recovery is encouraging, even if structural pressures persist. Despite marked outperformance since May’s results, the rating is low and strong cash generation backs a generous dividend policy.
Profit growth back on track
HRG is on course to meet its current year expectations. Maintained constant currency revenue in Q1 (as in H215) and July IMS guidance of “good progress” over the full year support our forecast of 8% higher constant currency trading profit. Our assumption of significant margin pick-up (14.0% against 12.9% last year, but still below 14.5% in FY14) reflects better than expected cost control in FY15, raised guidance of £8-10m savings from reorganisation and the Government of Canada contract moving into profit. The new business pipeline is healthy, as is the scope to expand relationships with existing clients. Key growth initiatives, such as new service offerings and new markets, are clearly paying off. For FY17 we assume further trading margin gain, if at a lower rate, owing to cost savings, new technology sales, boosted by the new Fraedom brand, and easing economic conditions.
Tried and tested model
HRG’s revenue is predominantly managed travel income, whereby fees are received specifically to manage down client costs as well as from a range of added-value, higher-margin related services, whose increasing complexity builds a robustness of earnings and differentiation from leading competitors. The client base is diverse. Growing demand for technology, recognised in the Fraedom brand launch, plays to HRG’s strengths, not only in higher-margin delivery to travel management clients, but also in its ability to serve the wider travel and expense sectors.
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