EUR 850.00 For Business Accounts Only

Morningstar | Travelport Sees Solid Results in International Markets and Payment Solutions; Narrow Moat Intact

Narrow-moat Travelport Worldwide reported a solid second quarter, posting sales and EBITDA growth of 8% and 7%, respectively, highlighted by share gains in several international markets (75% of platform revenue) and continued strength in its eNett payment business (13%). We don't expect a material change to our $18 fair value estimate with first-half sales and EBITDA up 6% and down 1%, respectively, tracking toward our 6% and 2% 2018 forecast. We see the shares as slightly overvalued.

Travelport is performing well in many international markets as it gains wallet share among agencies and wins new clients, aided by improving response times (down another 25% year to date after a 33% enhancement in 2017). For instance, the company saw a 7% volume lift in its European region (24% of total volume), which was 6 times the market, leading to 100 basis points of air booking share gain. We think this presents another challenge for narrow-moat Amadeus' core region. Meanwhile, Asia-Pacific (19%) volume was down 8% due to one previously lost customer that has since been replaced with several new clients in the region as well as ongoing wallet share among existing customers, leading to 2% sales growth in this region and claims by the company that it is gaining air booking share in the market. Importantly, Travelport continues to do well in the increasingly large Indian global distribution system market, where the company increased air volume 21% compared with the market's 17% rise, aided by its relationship with the low-cost carrier IndiGo and leading online travel agencies.

In addition to volume gains, Travelport saw healthy 12% growth in revenue per transaction in foreign markets, aided by an industry-leading merchandising solution. Outside of air transactions, the company's payment solution continued its robust growth with an 81% revenue increase, leading Travelport to raise 2018 revenue guidance for the product to above 50% growth from 30%-plus prior.

Travelport maintained its 2018 revenue and EBITDA guidance of 4%-6% and (1%)-3%, respectively, despite solid first-half results, as it expressed some potential concern that higher crude prices could cause North American and European carriers to increase ticket prices and pull back on capacity. This could present some headwind to Travelport's business model, which is tied to air volume, but we remain confident in our 6% and 2% 2018 revenue and EBITDA growth forecasts, respectively, and don't plan any material change to those estimates.