Morningstar | Amadeus' Network and Efficient Scale Advantages Intact Despite Near-Term Share Loss
Narrow-moat Amadeus reported a mixed quarter with temporary share loss in its Distribution segment (60% of sales) and strength in its IT Solutions business (40%). We see minimal change to our 5% and 6% 2018 sales and EBITDA estimates, respectively, with year-to-date sales and EBITDA tracking up 5% and 6%. That said, we plan to lift our EUR 52 valuation a mid-single-digit percentage to account for the TravelClick acquisition (scheduled to close in fourth-quarter 2018). We see shares as overvalued and see narrow-moat Travelport trading at attractive margin to safety.Amadeus' air booking share dropped 20 basis points year to date, as the company lost OTA share in Western Europe (33% of total bookings) to Sabre. Importantly, we note that industry share shifts can be lumpy but over time remain stable, and we believe Amadeus' network effect and efficient scale advantages are fully intact. We think that Sabre's 4% EMEA booking growth in the quarter versus Amadeus' 7% drop in Europe supports our long-held view that both companies offer competitive solutions and that Amadeus' 25 times 2019 earnings per share multiple relative to Sabre's 16 times is unwarranted.
More encouraging was that both Amadeus and Sabre are taking booking share from Travelport in North America (19% of bookings) with the former seeing a 8.5% booking lift in the quarter and the later 8% growth versus Travelport's 4% decline. We expect this trend to sustain given Travelport's underexposure to the region's leading OTA. Additionally, Amadeus' IT business performed well with year-to-date revenue and organic Passenger Boardings up 7.6% (near our 2018 7.5% growth estimate) and 7.8% (near our 2018 7.3% forecast), respectively.
We see the TravelClick acquisition as a good use of capital, as the cloud-based hospitality IT company will aid Amadeus in a key growth area. We expect the deal to add around a mid-single-digit percentage to consolidated cash flow.
Amadeus is a transaction processor for the global travel and tourism industry. Co. provides transaction processing power and technology solutions to both travel providers (including full service carriers and low-cost airlines, hotels, rail operators, cruise and ferry operators, car rental companies and tour operators) and travel agencies (both online and offline). Co. acts both as a worldwide network connecting travel providers and travel agencies through a processing platform for the distribution of travel products and services (through the Distribution business), and as a provider of a portfolio of IT solutions which automate certain business processes (through the IT solutions business).
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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