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This stock is a great reopening play, says Norman Levine

Another year another wave of COVID, the pandemic that’s more than worn out its welcome. And while the markets stay obsessed with inflation and interest rate hikes, investors should be paying attention to what we’ve all been waiting for, namely, the end of the pandemic and a return to some form of normal. 

For stock pickers looking at the upcoming rebound in the travel sector, one name that you might want to look at is Spanish IT provider Amadeus IT Group (Amadeus IT Group Stock Quote, Charts, News, Analysis, Financials BME:AMS.MC), which should start popping, according to portfolio manager Norman Levine.

“This one truly is a reopening stock,” said Levine at Portfolio Management Corp, who spoke on BNN Bloomberg on Friday. “Amadeus is a Spanish company, an IT company for the travel industry, and it is the backbone of the travel industry.”

“When you make a reservation chances are they’re using Amadeus software. When airlines do scheduling they’re using Amadeus, same thing for railroads, cruise lines, hotel chains, all of that. So, it’s a very travel-related IT company,” he said.

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As one might expect, Amadeus’ share price fell through the floor at the start of the pandemic in 2020, dropping from about €70 to about €45 and while the stock has picked up some ground over the intervening months and now years, it’s nonetheless been languishing around the €60 for the better part of 12 months. 

That movement has very much been par for the course for most names in the airline, travel and tourism spaces, where everyone is waiting for travel restrictions to end and for passengers to release all that pent-up energy and hit the road, skies and oceans.

Levine says Amadeus has weathered the storm and now it’s just a matter of time for business to return.

“[Amadeus’ business] is dependent mostly on volume so it needs volume to pick up and it hasn’t been getting that and that’s been holding it back,” Levine said. “Ultimately, that will come back.”

“The company is extremely well capitalized. It didn’t have to raise money when things went poorly in the industry. So, we’re happy to keep holding that one as well. It’s just, like all the reopening stocks, delayed,” he said.

The financial progress over the past two years from Amadeus, whose software covers areas like searching, pricing, booking and ticketing as well as reservations and inventory management, shows the stark reality. For its most recently reported quarter, the company’s third for the three months ended September 30, 2021, Amadeus hit revenue of €739 million, up nine per cent from the second quarter but still down a big 47 per cent to the company’s 2019 third quarter. Adjusted profit for the Q3 2021 was €23.8 million, down almost 93 per cent from its 2019 counterpart. 

Amadeus reports in three business segments, Air Distribution, Air IT Solutions and Hospitality & Other Solutions, with the Q3 2021 revenue split as €300.4 million from Air Distribution, €294.6 million from Air IT Solutions and €144.2 million from Hospitality & Other Solutions.

“During the third quarter, we continued to see progress in volume performance, with positive trends in both air bookings and passengers boarded, across all regions. This also extends to our Hospitality segment, with performance improvements across our entire portfolio, and more notably in revenue lines driven by transactions, such as reservations, bookings and media clicks,” said Amadeus President and CEO Luis Maroto in a November 5 press release.

“As a result, we saw our first quarterly profit since the pandemic started, of €23.8 million1. Our free cash flow also turned positive, with an inflow in the quarter of €83.6 million,” he said.

“Looking at the rest of the year, we are confident that our commercial momentum, along with the upward trend in travel volumes, will allow us to maintain this positive progression towards recovery,” Maroto said.

Travel agency air bookings for the third quarter were down almost 59 per cent from their 2019 counterparts while passengers boarded was down by 51 per cent.

Last year, Amadeus launched a strategic partnership with Microsoft to move Amadeus’ platform and applications to Microsoft’s cloud computing service Azure and to collaborate on new product development. And last month, Amadeus delivered a status report calling it the most transformational technology development in the company’s 30-plus year history. 

The move to the cloud will make for a more personalized way for customers to search for travel, for responding to travel disruptions and creating its “Traveler Centric Platform.”

“Our partnership with Microso is not just about accelerating our journey to the cloud, it’s also about unleashing the next wave of innovation in the travel industry. The goal is to take advantage of the possibilities that cloud technology offers, and work together with Microsoft and the entire travel industry to transform travel IT,” said Jorge Elliot, Amadeus’ VP, Strategic Partnerships, in the report.

About The Author /

Jayson is a writer, researcher and educator with a PhD in political philosophy from the University of Ottawa. His interests range from bioethics and innovations in the health sciences to governance, social justice and the history of ideas.
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