Amadeus - Banco BPI
Transcript of Amadeus - Banco BPI
Premium class, premium valuation(YE15 Price Target increased from € 34.00 to € 35.80; Recommendation
downgraded from Buy to Neutral)
4 Upside more contained, downgrading to Neutral: Amadeus has been outperforming
its peers, trading now close to historical highs at 11.0x EV/EBITDA and 18.4x
P/E 2015F, at a 19% premium to the sector and 23% to its historical average.
Amadeus' superior MLT growth profile (supported by its incursion into New
Business Units), higher ROIC and healthier B/S justify to a certain extent such
a premium. However, in view of the current limited upside to our YE15 Price
Target of € 35.80 and absence of clear short term catalysts, we downgrade our
recommendation from Buy to Neutral.
4 ML term drivers - more favorable in ITS than GDS: the ITS division should remain
supported by migrations to Altea and new contracts. Prospects for NBUs (Airport,
Rail or Hotel IT) are also positive although visibility on demand and Amadeus'
ability to successfully replicate its expertise into the new businesses are still
limited at this stage. A structural increase in global travelling should continue
to benefit the GDS division but competition and disintermediation are underlying
threats. A sensitivity analysis to long term growth and margin assumptions
reinforces a neutral stance on the stock at these levels.
4 Risks to our recommendation: the drop in oil prices is a tailwind for consumer
spending and global traffic growth as well as a source of upside for Europe's
dismal economic outlook. Still, competition in GDS is a headwind and a potential
source of revenues/margins pressure. On the other hand, Amadeus' strong CF
generation and solid B/S situation (1.0x Net Debt/EBITDA 2014F) could drive an
enhanced shareholder remuneration, either through higher pay-outs or further
share buy-backs. Nevertheless, an overhang risk persists over c.3% of capital from
Air France and Lufthansa Pension Trust, which have been reducing their stakes.
Stock data
Price (5th Jan.): 32.36 Price Target (YE15): 35.80
# shares (mn): 448 M. Cap (€ mn)/F. Float: 14 482 / 78%
Reuters/Bloomberg: AMA.MC/AMS SM Avg. Daily Vol. [€'000]: 101 543
Major Shareholders: Blackrock (5.2%); MFS (5.0%); Government of Singapore (4.9%);
Air France-KLM (2.2%); Fidelity (2.0%); Invesco (1.3%); Lufthansa Pension (1.0%)
Estimates 2011 2012 2013 2014F 2015F 2016F 2017F
PE Adj. 29.7 25.2 23.4 21.5 18.4 16.3 14.6
Dividend yield 0.9% 1.1% 1.6% 1.9% 2.2% 2.5% 2.9%
FCFE Yield 5.6% 3.6% 3.4% 1.7% 3.9% 4.3% 5.4%
FCFF Yield 4.4% 4.0% 3.9% 2.1% 4.3% 4.6% 5.6%
PBV 11.4 9.4 7.8 6.7 6.2 5.2 4.3
EV/EBITDA (1) 14.9 14.0 13.0 11.9 11.0 10.2 9.2
EV/Sales (1) 5.8 5.5 5.2 4.7 4.4 4.1 3.8
Historical Recommendation
Date Recommendation
01-Jul-13 Neutral
09-Sep-14 Buy
Source: BPI Equity Research.
EQUITY RESEARCH
AmadeusTravel & Leisure
NeutralMedium-Risk
8th January 2015
Spain
Amadeus vs. IBEX35 vs DJ
Stoxx 600
Source: Bloomberg.
BPI
Available on our website:
www.bpiequity.bpi.pt, BPI Online,
and Bloomberg at NH BPD
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Analysts
Guilherme Macedo Sampaio, CFA
Phone 351 22 607 3179
Manuel Coelho
Phone 351 22 607 3143
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Equity Research 4 Amadeus 4 January 2015
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BPI vs. Consensus
Company: Amadeus
Sector: DJ Stoxx Tr&Ls € Pr
Valuation monitor
Relative Valuation 2014 2015 2016
EV/EBITDA
BPI 11.9 11.0 10.2
Consensus 12.3 11.4 10.7
Sector 7.5 6.8 6.4
P/E
BPI 21.5 18.4 16.3
Consensus 21.7 20.1 18.5
Sector 16.1 13.7 12.0
PBV
BPI 6.7 6.2 5.2
Consensus 6.6 5.8 5.0
Sector 3.2 2.8 2.3
Dividend yield
BPI 1.9% 2.2% 2.5%
Consensus 2.1% 2.3% 2.6%
Sector 2.6% 2.6% 3.3%
P&L and B/S monitor
BPI estimates/Consensus 2014 2015 2016
Revenues 1% 2% 2%
EBITDA 0% 0% 2%
EBIT 1% 1% 1%
Net Profit 1% 8% 12%
Net Debt -5% 15% 22%
Capex 83% 15% 17%
Profitability monitor
EBITDA Margin
BPI 38.2% 38.3% 38.8%
Consensus 38.5% 38.9% 38.7%
EBIT margin
BPI 29.1% 28.9% 29.0%
Consensus 28.8% 29.1% 29.1%
Net Profit margin
BPI 19.8% 21.0% 22.1%
Consensus 19.7% 19.9% 20.3%
Key leverage ratios
Net Debt/EV
BPI 0.1 0.1 0.1
Consensus 0.1 0.1 0.1
Net Debt/EBITDA
BPI 1.0 0.9 0.7
Consensus 1.0 0.8 0.6
Stock Momentum
Price Performance Forward P/E and EV/EBITDA
Market Price Rating (€) Market Recommendations
Fair Value Comparison (€) CAGR 2013-15
EBITDA Consensus (€mn) EPS Consensus (€)
Source: Factset, Bloomberg and BPI Equity Research.
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Equity Research 4 Amadeus 4 January 2015
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Amadeus at a Glance
FY14F Revenues Breakdown (€ 3.4bn) GDS Market Share Evolution
Source: Amadeus.
FY14F Revenues breakdown (€ 3.4bn) FY14F Cash costs breakdown FY14F EBITDA Breakdown (€ 1.3bn)
Source: Amadeus, BPI Equity Research. (1) Incentives and distribution fees,
data communication expenses.
Air traffic and GDS bookings - Evolution Amadeus presence in different world regions (1) (2)
Source: Amadeus, IATA. Source: Amadeus, BPI Equity Research. (1) Growth figures for
8M14. (2) GDS market share vs. revenues weight vs. market growth.
Debt Maturities (€ mn) Capex evolution (€mn) vs. Capex/Sales
Source: Amadeus, BPI Equity Research. Source: Amadeus, BPI Equity Research. (1) ex- PPA Amortization.
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Equity Research 4 Amadeus 4 January 2015
UPSIDE MORE CONTAINED, DOWNGRADING TO NEUTRAL
Back to historical highs
Amadeus is up 14% since last September and trades close to historical highs at
11.0x EV/EBITDA and 18.4x P/E 2015F. This represents a 23% premium to its
historical average and a 24% and 13% premium to Travelport/Sabre and the average
of the Transaction, OTA and IT industries (proxy-peers), respectively. A premium to
historical levels can be justified by Amadeus' incursion into New Business Units
(which should boost medium-long term earnings), while higher multiples vs. peers
may be explained to a certain extent by Amadeus' higher ROIC, superior growth
profile and healthier B/S. However, the upside to our YE15 Price Target of € 35.80
(+5% revision namely on a lower tax rate in Spain) is now more limited. With the
stock trading at a modest 3.8% FCFE and in the absence of clear short term
catalysts, we downgrade our recommendation from Buy to Neutral.
Sum of Parts (€ mn) DCF Assumptions
Business EV Attrib. % EV
Distribution 6 858 41% Re 10.5%
IT Solutions 10 055 59% Rf 3.3%
Enterprise Value 16 913 Avg. CRP 0.1%
YE15 Net Debt 1 328 Beta Equity 1.2
Provisions & Other Liabilities 91 Mkt Premium 6.0%
Financial Investments 45 Rd 3.6%
Minorities 21 Tax Rate 25%
Equity Value 15 517 D/EV 30%
# Shares (mn) 434.6 WACC 8.2%
YE15 Fair Value (€) 35.80 g (Distribution) 1.5%
g (ITS) 3.0%
Source: BPI Equity Research.
AMS P/E FW12M AMS P/E disc./premium to proxy-peers
Source: Factset.
Sensitivity analysis on medium term drivers
The IT Solutions division (59% of our target EV) should remain supported by
migrations to Altea and new contracts with the North American market looking like
an interesting medium-long term target (with US airlines increasingly searching for
more sophisticated IT systems). We note that a potential new deal with a major
airline (like Delta or United Continental) could bring c.150m further Passenger
Price Performance
1M 3M 12M
Amadeus 1% 14% 8%
Travelport 4% 8% n.a.
Sabre 5% 10% n.a.
Ibex 35 -8% -5% 2%
DJ Stoxx T&L -1% 12% 16%
Source: Bloomberg.
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Market Multiples
EV/EBITDA P/E
15F 16F 15F 16F
Amadeus 11.0 10.2 18.4 16.3
Sabre 8.3 7.1 17.4 13.8
Travelport 7.6 6.9 16.0 12.7
Median GDS 8.0 7.0 16.7 13.2
Thomson Reuters 10.5 9.9 18.0 15.9
Experian 10.8 9.9 16.5 15.3
Visa 15.8 13.8 24.3 20.9
Mastercard 14.2 12.2 23.0 19.3
Western Union 7.3 6.8 10.6 10.1
ADP 9.5 9.6 14.7 13.6
Median Trans. 10.6 9.9 17.3 15.6
Priceline 12.0 9.4 17.0 14.4
Expedia 8.5 6.7 18.4 15.8
Orbitz 5.7 4.1 19.8 16.7
Median OTAs 8.5 6.7 18.4 15.8
SAP 10.0 8.6 14.8 13.7
Sage 12.1 11.3 17.3 16.0
Dassault Syst. 13.2 11.7 23.7 21.3
Software AG 7.0 6.2 10.7 10.3
AVEVA Group plc 9.3 7.9 16.0 14.8
Atos Origin 4.0 3.4 11.5 10.3
Tieto 6.7 6.3 12.5 11.9
Median IT 9.3 7.9 14.8 13.7
Source: BPI Equity Research
(Amadeus) and FactSet.
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Equity Research 4 Amadeus 4 January 2015
Boards (15% of Amadeus 2017 target) and 5% additional upside to our Price Target.
However, there is also a risk of Alitalia's exit from Altea following its recent link with
Etihad. This could have a 1% negative impact in our valuation. In a blue-sky scenario
where every airline currently in Altea contracts all of Amadeus' existing modules, our
Price Target would rise by over 10%. Medium-long term prospects for NBUs (such as
Airport, Rail or Hotel IT) are also positive. A sole agreement with a top tier chain could
account for the total signings we are currently forecasting until 2022. The risks here
are the still limited visibility on demand, competition and Amadeus' ability to
successfully replicate its ITS expertise onto the new businesses.
The Global Distribution Sytems division (41% of our target EV) should continue to
benefit from a structural increase in global travel and traffic growth as well as from
Amadeus' diversified geographic-mix and technological advantages. However,
competition and disintermediation are underlying threats. In this context, IATA's
New Distribution Capability (NDC) project stands as a potential menace. Still, we tend to
see this eventually as an opportunity for the incumbent GDS, considering their likely
role as content aggregators within a higher value-added chain. It is true that one
cannot rule out some volumes pressure arising from the appearance of direct connection
initiatives but on the other hand at least part of that potential revenue erosion could
be recovered in the ITS business (considering the need for the system implementation
and Amadeus' good position as ITS provider). In a worst case scenario, we estimate
that a loss of 10% in Amadeus' air bookings from 2017 onwards could have a 7%
negative impact in our valuation. This does not account however for the potential
upside in ITS which is more difficult to quantify and highly dependent on the
implementation costs and pricing of an XML connectivity.
Sensitivity analysis on long term growth and margins
Our YE15 Price Target is based on a weighted average long term growth of 2.4%
and a long term EBITDA margin of 41.4% (vs. 38.2% in 2014F and a 2007-13
historical average of 37.2% ex-Opodo). Main risks to these figures are competition,
particularly in GDS and NBU. Assuming a 1pp change in long term growth and
EBITDA margin assumptions, our PT would vary by c.+€ 3.0 (+8%), implying an
upside range from 3% to 21%.
EV/EBITDA vs. ROIC 2015F
Source: BPI Equity Research
(Amadeus) and FactSet.
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YE15 PT Sens. Analysis (€/sh)
Traffic growth
LT EBITDA mg 4.0% 5.0% 6.0%
40.4% 32.90 34.70 36.60
41.4% 33.90 35.80 37.70
42.4% 34.90 36.80 38.80
Potential upside
Traffic growth
LT EBITDA mg 4.0% 5.0% 6.0%
40.4% 4% 10% 16%
41.4% 7% 13% 19%
42.4% 11% 16% 23%
Source: BPI Equity Research.
YE15 PT Sens. Analysis (€/sh)
g
WACC 1.9% 2.4% 2.9%
7.7% 38.00 39.40 41.20
8.2% 34.60 35.80 37.10
8.7% 31.80 32.70 33.70
Potential upside
g
WACC 1.9% 2.4% 2.9%
7.7% 20% 25% 30%
8.2% 10% 13% 17%
8.7% 1% 4% 7%
Source: BPI Equity Research.
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Equity Research 4 Amadeus 4 January 2015
BUSINESS OUTLOOK & EARNINGS UPDATE - IT SOLUTIONSTHE MAJOR GROWTH DRIVER
The IT Solutions division should be the key growth driver for Amadeus, at first
through Altea and subsequently through NBUs. We expect it to increase from 38%
of consolidated Contribution (Revenues-Direct Costs) in 2014F to 46% by 2017F.
On the other hand, GDS should continue to lag in growth terms, impacted by a
structural disintermediation trend and competitive pressures across the industry.
Contribution and EBITDA Growth
CAGR
2013 2014F 2015F 2016F 2017F 2013-17F
Contribution 1 587 1 732 1 864 2 001 2 184 8.3%
GDS 1 036 1 067 1 111 1 139 1 170 3.1%
ITS (ex-NBUs) 551 625 705 804 903 13.2%
NBUs (inc. Newmarket) 0 41 48 57 112 n.s.
Indirect costs 398 432 454 477 501 5.9%
EBITDA 1 189 1 300 1 410 1 524 1 684 9.1%
Source: Amadeus, BPI Equity Research.
13% Contribution CAGR 2013-17F at ITS ex-NBUs
This should be supported by: 1) the already signed airline migrations with Korean
Air, Thomas Cook, Southwest's domestic business, Swiss International and Japan
Airlines, comprising on the whole, a 9% CAGR 13-17F; 2) an expected traffic
growth of 6% in that period; and 3) a flat average Revenue/Passenger Boarded
evolution as the upselling of new Altea modules should be offset by the pricing
dilution arising from the Southwest Domestic migration.
Positive outlook for Passenger Boardings
Amadeus should be able to reach its target of c.1bn PBs by 2017, implying a
CAGR of 15% in 2013-17F, supported by a favorable business environment. We
identify incremental opportunities as airlines are increasingly willing to outsource
their outdated legacy systems (mostly from the 1960s/1970s), which often cannot
efficiently address the current activity needs. On the other hand, airline contracts
representing more than 1bn PBs should come up for renewal over the next three
years (only a small part from Amadeus), which may be an opportunity for market
share gains, especially in the Middle East and Asia-Pacific. We also see interesting
MLT opportunities in the US market. On this front, after setting a first foothold in
North America with the agreement with Southwest in 1H14, Amadeus should be
seeking to further develop its presence in that market, which remains relatively
limited when compared to its main peer Sabre. Delta Airlines seems to be a potential
target for Amadeus' Altea system after having recently reacquired part of its PSS
from Travelport (which kept the systems infrastructures and hosting). Also, we do
not discard a decision from United Continental of at some point replacing its
current IT provider, which would be an additional opportunity for Amadeus.
Additionally, the global airline industry should continue with its consolidation process
in order to improve efficiency levels, which should act as a catalyst for IT overhauls
and potential new contracts for ITS providers. Still, sector consolidation also induces
churn risks as it may happen with the exit of Alitalia from Altea, following the
acquisition of a 49% stake in the Italian airline by Etihad.
FY14F Revenues breakdown
per business unit
Source: Amadeus.
Contribution Breakdown
Source: Amadeus, BPI Equity Research.
FY14F Cash costs breakdown
(1) Incentives and distribution fees, data
communication expenses.
Source: Amadeus.
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Equity Research 4 Amadeus 4 January 2015
Moreover, while likely value accretive, an incursion into North America could entail
some dilution in fees per PB given the more consolidated nature of the market and
the greater bargaining power of airlines. Still, we believe that Amadeus should try
to at least partially offset this effect through the upselling of the new Altea modules
it has been developing (such as Departure Control Systems, Revenue Management,
Revenue Accounting and Loyalty Management). Although DCS upselling should
not be a major earnings driver as most of the clients have already contracted this
module, we envisage good prospects for the remaining areas, considering the
relatively low client base. Still, inroads on these markets may appear more
challenging, considering the higher competition levels. In any case, the sign-up by
all current clients for all of Amadeus' 6 modules could mean an upside of more
than 20% in the current average fee/PB, according to our estimates. Also, we
should continue to see interesting cross-selling opportunities for e-Commerce and
Standalone Solutions as airlines strive to improve the way customers are addressed
(digital channels, ancillary revenues, etc).
Still incipient but fast growth expected for NBUs
The earnings contribution of the NBUs should remain limited in the short term
(2% of consolidated Contribution in 2014F, mostly explained by Newmarket) but
we expect it to increase over time (16% of Contribution by 2022F) and become a
major earnings growth factor in the medium-long term with its Contribution
increasing from € 41m to € 480m between 2014F and 2022F (40% CAGR). This
should be driven by the gradual incorporation of the new products into Amadeus'
portfolio as they reach the marketability phase, and new contract signings.
Further visibility on NBUs outlook
2014 has been an active year in terms of contract signings, with launching
partners found for most of the areas where the company is aiming to increase
its presence. On Hotel IT, an agreement was signed with the Intercontinental
Hotel Group encompassing the implementation of several modules that Amadeus
is developing for the industry. With the progress achieved to date, the company
is now looking for an additional partner to test other products that it plans to
include in its Hotel Solutions. The acquisition of Newmarket in late 2013 should
accelerate earnings delivery by improving the access to top hotel chains
(Newmarket's client base and Amadeus target market) and boosting cross-selling
synergies.
Still, we only expect the Hotel IT product (ex-Newmarket) to be marketable by
2017. We forecast Hotel IT revenues to reach € 385m, or € 537m including
Newmarket, by 2022 (c18% market share) assuming that Amadeus manages to:
1) charge c. € 0.60/room for its IT transactional services (considering the € 3bn
target market Amadeus predicts by 2022 and the c.14m hotel rooms worldwide);
2) sign the equivalent of one mid to large size hotel chain, (with 150k rooms)
per year from 2018 (vs. the current c.700 of IHG); and 3) grow its room portfolio
by a conservative underlying 2% CAGR 2013-22F, in line with the market.
On Airport IT, Amadeus is working with the Copenhagen and Munich airports on
the development of the fixed resource optimizer (targeting a more efficient slot
allocation) and sequence planner, respectively. Also, it has recently signed an
agreement with London Gatwick Airport to implement a cloud-based Airport-
Collaborative Decision Making Portal, capable of providing aggregated views of
the status of the airport's operational activities based on real-time flight,
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Equity Research 4 Amadeus 4 January 2015
passenger and other operational data. On this area, Amadeus seems to have a
product at a clearly more advanced stage, with some revenues contribution
already expected for 2016 and probable new contract signings over the next
12-months. On the other hand, we believe that Amadeus has several advantages
vs. its main competitors (SITA, ARINC, Ultra Electronics), namely its Altea DCS
presence in several airports (643, with a 50% market share in more than 200)
and its product specifications (integrated, transaction based pricing model).
Also, the acquisition of UFIS has brought a very good customer base, adding
complementary modules to Amadeus solutions in several areas (airport operational
database, resource management systems, flight information display systems
and collaborative decision making). We forecast Airport IT revenues to reach € 623m
by 2022 (20% market share), supported by: 1) agreements with the equivalent
of 20 mid-size airports (with 35m passengers/year); 2) the charge of a € 0.54
average fee/PB (considering the € 1.6bn target market on Amadeus figures
and c.3bn passengers worldwide); and 3) an underlying passenger CAGR 2013-
22F of 5%, in line with the IATA expectations.
On the remaining areas, there has already been some progress in: 1) Rail IT
through a contract with BeNe Rail International for the product development,
although the advances here should be relatively slow (marketability expected
only for 2020); and 2) Payments with agreements with Wirecard, Alipay, UnionPay
and Worldpay (even if the earnings contribution should remain relatively limited
in the short term). Travel Intelligence is a promising area, considering Amadeus'
extensive travel knowledge and access to industry data but visibility on its
earnings potential remains low at this stage.
3% Contribution CAGR 2013-17F at GDS
The Global Distribution Systems division should post a slower growth impacted by
less favorable trading conditions.
Market share gains helping to cope with disintermediation headwinds…
The expected traffic growth (c.5%/year in the medium-long term, in line with
IATA's projections) should be partly curbed by a structural disintermediation
tendency across the sector (c.2pp/year). This trend however has been showing
some signs of stabilization with some Low-Cost Carriers (LCCs) increasingly shifting
bookings to indirect channels in the search for higher yields. The recent agreement
between Ryanair and Amadeus and Travelport is a good example of this. In any
case, we believe that Amadeus should continue to cope relatively well with this
disintermediation headwind helped by market share gains, which should remain
supported by: 1) the migration of Topas and Orbitz (2014-2016); 2) a favorable
geographic-mix biased towards higher growth regions (with relatively lower exposure
to North America); and 3) superior technology vs. some of the competitors.
… but competition pressuring margins
A tough competition environment should drive costs higher through the increase
in unit incentives, with a negative impact on margins. Still, the situation may not
be sustainable and could normalize at some point in time, considering the relatively
worse financial situation of Amadeus' main GDS competitors (Sabre and Travelport
with 3.4x and 4.0x ND/EBITDA 14F respectively, vs. Amadeus 1.0x). On the other
hand, the growing weight of local bookings driven by the incursions of Amadeus
into the US and Korean markets as well as the increasing participation of LCCs in
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Equity Research 4 Amadeus 4 January 2015
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GDS should lead to some dilution in average revenues per booking. This effect
could be mitigated in the medium-long term by the positive effect arising from an
increased weight of higher value-added global bookings, where Amadeus charges
higher fees.
GDS market shares (1) GDS market share evolution
(1) Sabre’s bookings including Abacus and Infini (JVs in Asia). Source: Amadeus, BPI Equity
Source: Sabre. Research.
Downside and upside risks
Amadeus' geographic diversification and long term nature of its contracts (5-10
years) provide a recurrent revenue stream and make it as a relatively defensive
player in the travel & leisure sector. Still, its activity is not immune to the macro
environment. Over the last 40 years, global air traffic has evolved at a multiplier of
1.3-1.6x to GDP so the weak economic outlook for Europe is currently a headwind.
On the other hand, the drop in oil prices could act as a tailwind: although not
directly impacting Amadeus (not an input cost), it benefits the airlines sector
(which may lower fares and raise passenger volumes) and eventually lifts the
available income of customers to travel.
IATA's NDC a menace or opportunity?
IATA's New Distribution Capability (NDC) project was originally conceived as a way
to increase the knowledge on the traveler (concept of "who is asking") and improve
customization in the indirect distribution channel. This would answer to the airlines'
aim of raising yields through ancillary sales, something possible in their own websites
but more difficult through travel agencies. Airlines should therefore be the main
beneficiaries of the NDC implementation but travel agencies should also profit
from the access to a more detailed, real-time content. Although this is something
that is already possible through the current GDS operating technology (based on
EDIFACT language), NDC is supporting the convergence into XML standards, which
are significantly more flexible. Still, this switching process involves a significant
investment by travel operators, which represents a major obstacle for the NDC
development. Nevertheless, the project seems increasingly a reality and the final
product is now expected to be ready by 2017.
Resilience to the economic cycle
Source: Amadeus.
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Equity Research 4 Amadeus 4 January 2015
EDIFACT (GDS) vs. ...
... XML Interface (NDC)
NDC implementation timeline
Source: IATA.
Source: IATA.
The GDS role post-NDC has been a matter of extensive discussion. A wide
implementation of the XML framework (simpler and more flexible than EDIFACT)
would decrease the technological entry barriers in this business segment (commercial
barriers would still be difficult to overcome though) and possibly support a new
wave of direct connections (bypassing GDS) which could be a source of volumes
pressure. Still, this NDC implementation would imply significant IT investments by
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Amadeus Geographical
Revenues Breakdown
Source: Amadeus.
11
Equity Research 4 Amadeus 4 January 2015
airlines/travel agencies in order to fund the multiplicity of direct links that would
be needed to connect each airline with each travel agency. The use of an industry
content aggregator might partially solve this problem. In this sense, the reliance on
incumbent GDS to carry out this revamping in the distribution process seems progressively
more likely and these have already assumed their availability to cooperate with IATA
on the NDC project (even if sharing the investment costs with other industry players).
GDS operators acting as aggregators would also ensure that incentive fees (often a
relevant part of travel agencies' revenues) are not lost. On the GDS side, the NDC
implementation could also be an opportunity in the way that the resulting enhanced
airline product could push the overall booking value and hence the distribution fee charged.
Additionally, the airlines' need to upgrade their IT systems to support the XML
connectivity could bring incremental business for IT companies, with Amadeus standing
in a good position to seize this, considering its good track record in IT systems
implementation and know-how in the airline industry.
Downside risks for GDS?
Aside from some possible volume losses driven by the emergence of specific direct
connection initiatives, we see the NDC project as an opportunity for the GDS
market. Still, the appearance of a new entrant content aggregator capable of
financially supporting the creation of a XML platform is a significant risk.
Nevertheless, any investor would seek a decent return on its capital with travel
industry participants eventually being charged. Ultimately, this would only be a
valid alternative if the offered value proposition is better than that delivered by the
GDS, something which would be difficult to materialize at least in the near term.
Overall, we believe that an opportunity for the IT Solutions business should remain
in place.
Flight Distribution Today New Distribution Capability
Source: IATA.
12
Equity Research 4 Amadeus 4 January 2015
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Strong cash flow generation
We have incorporated the new Altea contracts (with Thomas Cook, Vistara and
South African Airways) and GDS agreements (namely with Ryanair), and fine-tuned
our traffic growth estimates, factoring-in a weaker outlook for Europe. Additionally,
we have adjusted GDS pricing, reflecting a stronger USD. Overall, we have kept
our consolidated estimates roughly unchanged, leading to an expected CAGR 2013-
17F of 8% at revenues and 9% at EBITDA (13% at net profit).
We remain roughly in line with consensus at the operating level although somewhat
above at net profit due to the incorporation of the new Spanish tax regulation
(25% vs. 30% rate from 2016 onwards). We have also cut our Capex projection for
2014 (by 9%, now standing close to the company's low end guidance of 12-15%
of revenues) and incorporated the recently announced share buy-back plan (of up
to € 320m/2.79% of capital until next May). Overall, cash flow generation should
remain strong with Amadeus expected to improve its Net Debt/EBITDA from 1.0x in
2014F to 0.4x by 2017F. This could support an enhanced shareholder remuneration
going forward either through higher dividend pay-outs (currently at 50%) or further
share buy-backs.
BPI vs. Consensus
2014F 2015F 2016F
BPI Cons. Dev. BPI Cons. Dev. BPI Con. Dev.
Revenues 3 400 3 383 1% 3 676 3 616 2% 3 925 3 857 2%
EBITDA 1 300 1 301 0% 1 410 1 405 0% 1 524 1 492 2%
margin 38.2% 38.5% 38.3% 38.9% 38.8% 38.7%
Net Profit 673 667 1% 771 715 8% 868 775 12%
Source: Bloomberg, BPI Equity Research.
Shareholding structure: do recent placements portray a negative signal?
A total of 5.4% of Amadeus' shares has recently been sold in the market at an
average price of € 29.41 (9% below the current price level) with the Lufthansa
Pension Trust selling 3.0% and Air France 2.4%. The reasons behind these disposals
could be other than valuation - particularly in the case of Air France which faces a
challenging financial situation - but overall the signaling provided to the market is
on the negative side, in our view. An overhang risk remains in place as the Lufthansa
Pension Trust and Air France remain with 1.0% and 2.2% of Amadeus, respectively.
EBITDA consensus (€ mn)
Source: FactSet.
Shareholding Structure
Source:CNMV.
Leverage evolution
Source: Amadeus, BPI Equity Research.
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Equity Research 4 Amadeus 4 January 2015
P&LCAGR
(€ mn) 2011 2012 2013 2014F 2015F 2016F 2017F 13-17F
Revenues 2759 2910 3104 3400 3676 3925 4291 8%
EBITDA 1073 1105 1194 1305 1416 1531 1691 9%
EBITDA adj. 1039 1109 1189 1300 1410 1524 1684 9%
EBITDA adj. mg. 37.7% 38.1% 38.3% 38.2% 38.3% 38.8% 39.2%
Depreciation & others -242 -273 -306 -316 -354 -394 -433 9%
EBIT 831 831 888 989 1062 1137 1258 9%
EBIT adj. 800 840 888 989 1062 1137 1258 9%
Net financial results -170 -89 -66 -65 -58 -46 -35 -15%
Income tax -213 -229 -266 -297 -281 -273 -306 4%
Others 282 -17 7 0 0 0 0 n.s.
Minority Interests -1 1 0 0 0 0 0 n.s
Net Profit reported 729 497 563 628 722 818 917 13%
Net Profit adj. 487 575 620 673 771 868 968 12%
Balance SheetCAGR
(€ mn) 2011 2012 2013 2014F 2015F 2016F 2017F 13-17F
Net Intangibles 3849 3944 4052 4561 4789 5017 5176 6%
Net Fixed Assets 282 299 305 269 239 206 171 -13%
Net Financials 28 30 27 27 27 27 27 0%
Inventories 0 0 0 0 0 0 0 n.s
ST Receivables 279 241 282 318 353 368 405 9%
Other Assets 48 61 63 63 63 63 63 0%
Cash & Equivalents 393 400 491 589 279 139 317 -10%
Total Assets 5044 5155 5427 6055 5996 6082 6447 4%
Equity & Minorities 1266 1531 1840 2152 2277 2734 3243 15%
MLT Liabilities 2720 2368 2348 2563 2275 1935 1686 -8%
o.w. Debt 2015 1541 1427 1601 1307 1000 800 -13%
ST Liabilities 804 984 970 1049 1132 1083 1160 5%
o.w. Debt 244 361 285 285 300 200 200 -8%
o.w. Payables 482 512 552 618 674 714 776 9%
Equity+Min. + Liab. 5044 5155 5427 6055 5996 6082 6447 4%
Cash Flow Statement
(€ mn) 2011 2012 2013 2014F 2015F 2016F 2017F
+ EBITDA 1070 1100 1189 1300 1410 1524 1684
- Chg in Net W.C. -20 -100 -30 -29 -35 -38 -43
- Taxes Paid 123 194 231 239 276 305 355
Operating Cash Flow 967 1006 988 1090 1169 1257 1372
- Growth Capex 75 66 78 416 147 157 129
- Replacement Capex 303 320 341 374 404 432 429
- Net Fin. Inv. -56 43 -2 0 0 0 0
Cash Flow after Inv. 644 577 570 300 617 668 815
- Net Fin. Exp. 170 89 66 65 58 46 35
- Dividends Paid 134 165 226 280 314 361 409
+/- Equity 8 5 9 -37 -283 0 0
Other 339 35 -7 6 6 7 8
Change in Net Debt -687 -363 -280 75 32 -267 -378
Net Debt (+)/Net Cash (-) 1865 1502 1221 1297 1328 1061 683
Growth, per share data and ratios2011 2012 2013 2014F 2015F 2016F 2017F
Sales growth 6% 5% 7% 10% 8% 7% 9%
EBITDA Adj. growth 6% 7% 7% 9% 8% 8% 10%
EPS Adj. growth 21% 18% 8% 9% 17% 13% 11%
Avg. # sh (mn) 448 448 448 448 443 438 438
Basic EPS 1.63 1.11 1.26 1.40 1.65 1.87 2.10
EPS Adj. Fully diluted 1.09 1.28 1.38 1.50 1.76 1.98 2.21
DPS 0.30 0.37 0.50 0.63 0.70 0.82 0.93
Payout 98.2% 22.6% 45.4% 49.7% 50.0% 50.0% 50.0%
ROCE (after tax) 19.3% 20.2% 21.9% 22.8% 22.6% 23.1% 24.4%
ROE 72.1% 35.6% 33.4% 31.5% 32.7% 32.7% 30.7%
Gearing (ND/EV) 11.9% 9.6% 7.8% 8.3% 8.5% 6.8% 4.3%
Net Debt/EBITDA 1.7 1.4 1.0 1.0 0.9 0.7 0.4
Source: Company data and BPI Equity Research (F)
Sum of Parts (€ mn)
Business EV Attrib. % EV
Distribution 6 858 41%
IT Solutions 10 055 59%
Enterprise Value 16 913
YE15 Net Debt 1 328
Provisions & Other Liabilities 91
Financial Investments 45
Minorities 21
Equity Value 15 517
# Shares (mn) 434.6
YE15 Fair Value (€) 35.80
Source: BPI Equity Research.
Sensitivity Analysis (€/Share)
-0.5pp D g +0.5pp
-0.5pp 38.00 39.40 41.20
D WACC 34.60 35.80 37.10
+0.5pp 31.80 32.70 33.70
Source: BPI Equity Research.
Market Multiples
EV/EBITDA P/E
15F 16F 15F 16F
Amadeus 11.0 10.2 18.4 16.3
Sabre 8.3 7.1 17.4 13.8
Travelport 7.6 6.9 16.0 12.7
Median GDS 8.0 7.0 16.7 13.2
Thomson Reuters 10.5 9.9 18.0 15.9
Experian 10.8 9.9 16.5 15.3
Visa 15.8 13.8 24.3 20.9
Mastercard 14.2 12.2 23.0 19.3
Western Union 7.3 6.8 10.6 10.1
ADP 9.5 9.6 14.7 13.6
Median Trans. 10.6 9.9 17.3 15.6
Priceline 12.0 9.4 17.0 14.4
Expedia 8.5 6.7 18.4 15.8
Orbitz 5.7 4.1 19.8 16.7
Median OTAs 8.5 6.7 18.4 15.8
SAP 10.0 8.6 14.8 13.7
Sage 12.1 11.3 17.3 16.0
Dassault Syst. 13.2 11.7 23.7 21.3
Software AG 7.0 6.2 10.7 10.3
AVEVA Group plc 9.3 7.9 16.0 14.8
Atos Origin 4.0 3.4 11.5 10.3
Tieto 6.7 6.3 12.5 11.9
Median IT 9.3 7.9 14.8 13.7
Source: BPI Equity Research
(Amadeus) and FactSet.
BPI
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Low Risk Medium Risk High RiskBuy/CoRe Buy >15% >20% >30%Neutral >5% and < 15% >10% and <20% >15% and < 30%Reduce >-10% and < 5% >-10% and < 10% >-10% and < 15%Sell < -10% < -10% < -10%These investment ratings are not strict and should be taken as a general rule.
BANCO PORTUGUÊS DE INVESTIMENTO, S.A.
Oporto Office Madrid Office Paris Office Cape Town Office
Rua Tenente Valadim, 284 Pº de la Castellana, 40-bis-3ª 31, Avenue de L'Opéra 20th Floor, Metropolitan Life Centre,
4100-476 Porto 28046 Madrid 75001 Paris 7 Walter Sisulu Avenue, Foreshore,
Cape Town, 8001 - South Africa
Phone: (351) 22 607 3100 Phone: (34) 91 328 9800 Phone: (33) 1 4450 3325 Phone: (27) 21 410 9000
Telefax: (351) 22 606 4183 Telefax: (34) 91 328 9870