Ahead of Aimia Inc.’s (TSX:AIM) first quarter 2018 results on Thursday, Industrial Alliance Securities analyst Neil Linsdell is maintaining his “Speculative Buy” rating an $3.25 price target, saying that he’s confident that the loyalty analytics company can find new options for its Aeroplan program once Air Canada takes flight in 2020.
Last year, Air Canada announced it would be severing its relationship with Aeroplan and launching its own loyalty rewards program, thus leaving Aimia’s future prospects in question. That has put management under pressure to deliver a strategy for the company’s post-Air Canada offerings, says Linsdell, who remains cautiously optimistic about Aimia’s restructuring prospects.
“Much of the future value of Aimia will be dependent on how the Aeroplan program will be repositioned as it loses its preferred relationship with Air Canada in June 2020,” says the analyst in a note to clients on Tuesday. “The program will have the ability to survive, but potentially on a smaller scale than it exists today. Much will depend on its financial partners (TD, CIBC, Amex) remaining loyal, which will be based on their judgement on the loyalty of their card holders to a modified Aeroplan program. In the interim, we would still expect members to maintain spending levels and thus Aeroplan Mile issuances and gross billings. Aimia must find a way to retain the attention of its five million members, with a first step likely being expanded flight options (with other airlines or a new key partner) post-2020.”
Linsdell says he expects gross billings for Q1 at $383.8 million, down from $430.6 in last year’s Q1, and Adj. EBTIDA of $58.6 million, up from $43.5 million last year. The analyst has not changed his projections for 2018 or 2019.
“We continue to believe that the Aeroplan program will be able to establish new travel reward options for the post-2020 period once it loses its exclusivity arrangement with Air Canada. However, recognizing that we are still two years from that point and there remain a number of moving parts and events that will need to occur, and with lower FCF expectations, we reiterate our valuation multiple of 4.0× EV/Adj. EBITDA on our 2019 forecasts, which supports our target price of $3.25,” says the analyst.
Linsdell’s $3.25 target represents a projected return on investment of 84 per cent at the time of publication.