* Upbeat messages somewhat offset by prudent 2018E financial targets
Amadeus gave upbeat messages at its CMD for both Distribution and PSS (Altea/ Navitaire), and while its
€1bn 2022 revenue target for the New Business Units (NBUs) is unchanged since its last CMD in 2013,
we feel it has demonstrated clear progress in Airport IT and Hospitality (albeit much of the latter has
been acquired). We are less convinced on Payments, BI and Rail IT. However, the positive messaging
around incremental revenue opportunities in both Distribution was somewhat undermined by a 2015-
2018E 3-6% CAGR growth target, while a target for IT Solutions of 10-20%pa growth also looks
prudent given Navitaire alone in 2016 brings around 17 points of growth. 2018 cons. of €4,931m sales
and €1,845m EBITDA each represent an 8% CAGR: in-line with the aggregate 2018 goal for a "high
single-digit CAGR" in both.
* Framing the market opportunity at €30bn. More insights into the NBUs
Mgt framed its 2018 opportunity at €10bn in Distribution, €8bn in Airline IT and €12bn in the NBUs (up
from €10bn in 2013), albeit with Payments ballooning to a €2.3bn opportunity from €0.3bn. The core
Hotel IT opportunity is estimated at €3.5bn (little changed from 2013's €3.0bn). Here, IHG is on track to
start migrating hotels over to Amadeus' Guest Reservation System in 2017. The NBUs in total currently
generate €300m sales at a 33% contribution rate (implying a strong 76% for the rest of IT Solutions).
We estimate past hotel acquisitions account for perhaps half of the revenue run-rate, while expect
Airport IT makes up much of the rest. Mgt is targeting €400-600m sales in 2018 at a 40% contribution
margin and €1bn at 40-60% in 2022.
* Excess cash flow leaves Amadeus with options
Amadeus expects to generate €1bn of excess cash by the end of 2018 assuming a 1.25x 2018 leverage
ratio (target 1.0-1.5x). Mgt wouldn't be drawn on whether acquisitions or buybacks were more likely,
but this clearly leaves it with optionality.
* Valuation: Neutral; €40 EV/NOPAT, FCF and DCF-based price target retained
The CMD showcased the strength of Amadeus' mgt team and the breadth of its opportunities. However,
y'day marked the anniversary of Lufthansa's announcement of Lufthansa's GDS surcharge. With no sign
of them changing track and ongoing pressure by airlines to "own the customer" more, we see today's
valuation as full enough.