M Partners analyst Ron Shuttleworth likes Guestlogix’s (Guestlogix Stock Quote, Chart, News: TSX:GXI) new deal with China Southern Airlines.
Yesterday, Guestlogix announced that it will be deployed to enable the purchase of inflight seat upgrades on the airline, which is Asia’s largest.
CEO Brett Proud said yesterday’s news was the result of the company laying groundwork in Asia.
“Our focused efforts in Asia Pacific are truly paying off as we welcome China’s largest airline — the fifth-largest airline in the world — into our customer base,” he said. “As the market leader in Asia Pacific, China Southern is carving its own path, staying true to its reputation as an innovator in terms of both technology and customer service. We are thrilled to assist China Southern with its unique inflight seat upgrade offerings, by enabling the off-line acceptance of China UnionPay cards on international long-haul routes for the very first time in the industry.”
Shuttleworth says the deal is significant. He believes that once deployed the seat upgrades should deliver $170-million of gross transaction value, of which Guestlogix takes between 4% and 6% in fees.
He says that based on the current 20% EBITDA margin associated with current non-in-flight entertainment deployments, the annual incremental EBITDA impact should range between $1.4-million and $2.0-million.
In a research update to clients following the news, Shuttleworth maintained his BUY rating on Guestlogix, but raised his one-year target from $1.35 to $1.80.
The M Partners analyst notes that his target does not assign a value to the deployment of Duty Free and OnTouch services, which the airline is also expected to deploy once the upgrade service is complete. He thinks this will add another $700,000 in incremental EBITDA.
Shuttleworth also believes that the China Southern could lead to deals with China Eastern, China Air and other carriers representing up to 150-million passengers annually.
At press time, shares of Guestlogix were even at $0.81.
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