M Partners raises target on Guestlogix to $1.25

M Partners analyst Ron Shuttleworth says he misjudged the importance of Guestlogix’s In-Flight Entertainment (IFE) deals. At first, he says, he assumed these partnerships would be about equal to the impact of a mid-sized airline deal. But now he believes these deals will be essential revenue streams.Last September, Guestlogix (TSX:GXI) partnered with Panasonic Avionics on a payment processing solution it said would turn hundreds of thousands of seatback screens into revenue-generating storefronts.

Then EVP and current CEO Brett Proud said the move was meant to capitalize on a larger trend.

“Shifting onboard retail control into the hands of passengers and ultimately giving them the ability to order and pay … from the seatback will allow ancillaries to be generated throughout the entire duration of the flight and not just during the finite period when flight attendants are able to provide cart service,” he said.

M Partners analyst Ron Shuttleworth says he misjudged the importance of Guestlogix’s In-Flight Entertainment (IFE) deals. At first, he says, he assumed these partnerships would be about equal to the impact of a mid-sized airline deal. But now he believes these deals will be essential revenue streams. In an update to clients this morning, Shuttleworth maintained his BUY rating and raised his target on Guestlogix to $1.25, up from his previous target of $1.10.

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Guestlogix was formed in 2002 and has since become the dominant player in the business of delivering ancillary revenue to airlines, with contracts to service more than a billion trips annually. Guestlogix management points out that all little extras; a fee for your second bag, a surcharge for reserving your seat in advance, are actually saving the industry, producing close to $60 billion in revenue last year. Without this ancillary revenue, the airline industry would still be a losing game. Guestlogix’s revenue has grown from just $5.43 million in fiscal 2007 to $22.8-million in 2011.

Shuttleworth says he is now adding approximately $1.0 million of revenue, to increase his fiscal 2012 top line estimate to $31.8 million, his EBITDA forecast was raised to $5.8 million from $5.1 million. He believes IFE’s will generate about $3.0M in revenue and $2.2M of EBITDA for the company.

Shares of Guestlogix closed today up 4.1% to $1.02.

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