Aimia has a 33 per cent upside, Industrial Alliance says

New agreements with Air Transat, Flair and Porter are making Aimia’s (TSX:AIM) Aeroplan program potentially very attractive, says analyst Neil Linsdell with Industrial Alliance Securities. In a research update on Wednesday, Linsdell reiterated his “Speculative Buy” recommendation and $5.00 target for AIM.

Yesterday, marketing and loyalty rewards company Aimia announced that Montreal-based Air Transat and no-frills airline Flair had signed preferred partnership agreements with Aimia, two deals which follow up on last week’s news that Porter Airlines would also be teaming up with Aeroplan in two years’ time, once Aeroplan’s agreement with Air Canada concludes in 2020.

Linsdell says that the Air Transat deal will broaden Aeroplan’s sun and holiday destination offerings. “Expecting Aeroplan members to want to redeem Miles for reward flights and vacation packages for popular sun and transatlantic destinations, partnering with Air Transat gives members a wide range of destination options to ease travel redemption concerns post-2020,” says the analyst.

“Last week, Aeroplan confirmed that it has also engaged in discussions with the Oneworld Alliance, whose 13 members include American Airlines, British Airways and Cathay Pacific, with seven of those airlines currently flying to Canadian destinations,” Linsdell says. “The potential commercial partnership would likely enable Aeroplan members to earn and redeem rewards on designated Oneworld member airlines’ flights once Aimia’s partnership with Air Canada ends in June 2020.”

The analyst claims that if played correctly, the recent partnerships could keep members engaged and entice Aimia’s existing financial partners such as Toronto Dominion Bank, CIBC and American Express to maintain or even extend or expand on their current contracts.

“Although there remain many moving parts to this story, we are encouraged by the fact that these announcements are two years in advance of the 2020 split, providing increasing certainty for members, and easing concerns of elevated redemptions,” he states.

Linsdell forecasts AIM to generate Adj. EBITDA in fiscal years 2018, 2019 and 2020 of $199.1 million, $204.4 million and $163.9 million, respectively. His $5.00 target represents a projected return of 32.6 per cent at the time of publication.