EUR 850.00 For Business Accounts Only

Morningstar | Amadeus Sees Solid 1Q Results, Despite Economic and Geopolitical Factors Weight; Shares Overvalued

Amadeus reported solid first-quarter distribution (60% of total sales) results with 1.6% air booking growth, above the 0% market level (narrow-moat peer Sabre posted 2.7% total travel booking growth) that slowed from the 1.1% lift seen last quarter, as geopolitical and economic factors weighed on results. Meanwhile, the company's passengers boarded over its IT software (40% of total sales) saw solid 6% organic growth (Sabre saw only 3.3% organic boarding growth, due to temporary customer disruptions). Overall, Amadeus posted revenue and EBITDA growth of 14% and 11%, respectively, tracking near our 2019 15% estimated lift for both metrics. We don't plan any material change to our Amadeus EUR 55 valuation. Trading at 23 times our 2019 earnings per share, we see Amadeus as overvalued. Meanwhile, Sabre trades at just 21 times 2019 trough earnings per share and at an attractive margin of safety to our $28.50 fair value estimate, despite offering similar low-double-digit average earnings growth over the next five years as narrow-moat Amadeus, as investors appear to be focused on near-term headwinds to 2019 profitability (strategically--cloud migration, airline customers that have their own specific challenges).

Amadeus saw its air booking market share lift 40 basis points in the first quarter, while Sabre calculated its share grew 140 basis points. Amadeus posted strong 14.6% air booking growth in North America (21% of total air bookings) that outpaced Sabre's 6% lift, as it benefited from recent agency wins. That said, Amadeus' APAC air bookings (18%) decline of 12.9% trailed Sabre's 0.3% increase, as the latter benefited from its 2018 Flight Centre business win. Meanwhile, the company's Western Europe region saw improved 2.1% air bookings growth versus the 7% drop reported last quarter, aided by some new agency business and higher global versus local travel mix that yields higher pricing (Sabre's combined Europe and Middle East/Africa segment declined 1.3%).

Amadeus reiterated 2019 guidance for low- to mid-single-digit and double-digit sales growth in its distribution and IT solutions segments, respectively. This compares with our distribution and IT solutions sales growth forecast of 2.2% and 15% organic (30% including TravelClick), respectively, which we don't plan to materially change.