AIMIA | AIM-TSX | price C$8.23 | Outperform
Estimates revised. Maintain C$15.00 target price.
Adj. EBITDA (mln): 2016E C$236 to C$234 2017E C$256 to C$255
Mkt Cap (mln): C$1,257 Net Debt (mln): C$733 Yield: 9.1%
AIM: 1Q16 Results; Short on (British) Gas, Long on Dividend
Kenric S. Tyghe, MBA | RJL | 416.777.7188 | kenric.tyghe@raymondjames.ca
Summary:
♦ While the results were below consensus of $55.8 mln (on adjusted EBITDA of $50.6 mln), we expect investors to look through the miss (given its attribution).
♦ We believe that the 5% dividend increase is well supported given the performance of the Aeroplan program and our belief that fears around refinancing risks are at odds with realities of the FCF generation and balance sheet strength of AIMIA.
♦ The Aeroplan program's performance, specifically the financial card partner billings growth and strong engagement, were key positives in the quarter, in our view.
♦ Aeroplan's absolute (and relative) loyalty value proposition delta continues to widen, with a recent change to allow use of Aeroplan miles for taxes and fees.
AIMIA May 16, 2016
AIM-TSX Company Comment
Kenric S. Tyghe MBA | 416.777.7188 | kenric.tyghe@raymondjames.ca
Krisztina Katai (Associate) | 416.777.7060 | krisztina.katai@raymondjames.ca
Consumer & Retail
1Q16 Results; Short on (British) Gas, Long on Dividend
Recommendation
We reiterate our Outperform rating on AIMIA following 1Q16 results. While the
results were below consensus of $55.8 mln (on adjusted EBITDA of $50.6 mln), we
expect investors to look through the miss (given its attribution) and focus on the
5% dividend increase (and the implicit messaging of the increase). The Aeroplan
program’s performance was solid (given the comps and macro dynamic), for flat
loyalty unit revenues, with credit card partner billings increasing and very healthy
engagement (as highlighted by the burn ratio). The International segment was the
largest driver of the miss on a 7.6% decrease in gross billings, which was driven by
the Nectar Italia exit, the shift to bonus miles at Sainsbury’s (seasonal bonus
volatility) and regulatory changes impacting British Gas. The Sainsbury’s dynamic
was a $15 mln billings headwind with British Gas a further $10.0 mln (of the total
expected $30 mln 2016E impact) drag. In addition, AIMIA incurred $4.0 mln (of the
total expected $10 mln transition cost) relating to the HP outsourcing agreement in
1Q16. We believe that the 5% dividend increase is well supported given the
performance of the Aeroplan program and our belief that fears around refinancing
risks are at odds with realities of the FCF generation and balance sheet strength of
AIMIA. We are buyers at current levels.
Analysis
The Aeroplan program’s performance, specifically the financial card partner
billings growth and strong engagement, were key positives in the quarter, in our
view. We have long been of the view that macro-driven concerns on credit card
billings growth are misplaced, which both industry and AIMIA results served to
reaffirm in quarter.
Aeroplan’s absolute (and relative) loyalty value proposition delta continues to
widen, with a recent change to allow use of Aeroplan miles for taxes and fees. The
combination of markedly increased seat availability, access to front of the plane (and
line), and now using miles for surcharges is in our view particularly compelling.
With the noise and (new) seasonality in the Nectar numbers, we believe that
investors should look through the 1Q16 miss (which was led by Nectar). The reality
is that not only was Nectar UK lapping the old base driven Sainsbury’s model (the
reset occurred in April 2015), but also accumulation was continuing in Nectar Italia.
Valuation
Our $15.00 target price is based on the average of a 12.0x multiple on our 2016E
adjusted EBITDA and an 8.0% FCF yield. Despite current market dynamics, our target
multiple is in-line with its loyalty and transaction processing peer group average of
12.0x, which we believe is warranted given AIMIA’s global loyalty positioning.
