Morningstar | Amadeus Underlying Growth Remained Solid in the First Half; but Shares Have Traveled Too High
Narrow-moat Amadeus reported a mixed first-half 2018 with solid high-single-digit underlying sales and EBITDA growth (excluding currency), aided by healthy IT Solutions (37% of total revenue), and despite anemic distribution (63%) results. We don't expect a material change to our EUR 48.50 fair value estimate, as slightly lower 2018 distribution sales are offset by the time value of money. Trading at over 25 times next 12-month earnings per share, well above the 21 times averaged over 2014-2017, we see shares of Amadeus as overvalued.Amadeus' IT business remained solid posting first-half organic passenger boarded, or PB, growth of 7.8%, near our 7.3% forecast for 2018, and comparable to 7.6% lift the company reported last year. Amadeus' organic growth remains above narrow-moat Sabre's mid-single digit level, something we forecast to continue, given the former's higher exposure to faster-growing regions (Asia Pacific is 33% of Amadeus' total PBs versus around 20% for Sabre). We plan to maintain our high-single-digit average annual IT revenue forecast for Amadeus over the next 10 years.
Amadeus air bookings rose only 3.4% during the first half of the year, below the industry's 4.3% lift, and behind our 2018 4.4% estimate, as volumes in its Western Europe region (34% of total bookings) dropped 6.5%, signaling that peers are having success penetrating the company's core market. That said, Amadeus air bookings outside of Western Europe grew a robust 9.2% in the first half, as the company continues to expand into Sabre's core North American market, witnessed by the 8.2% bookings growth Amadeus saw in the region during the first six months of the year. Overall distribution share for Amadeus was down 10 basis points to 43.5% during the first half of the year, as Sabre has regained some competitive positioning. We plan to slightly lower our 2018 Amadeus Distribution sales estimate to 4% from 5%, while maintaining our 4%-5% forecast over the following few years.
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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