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Groupe Aeroplan Up 1.5% as Credit Suisse Sees Positives in its I&C Business

Credit Suisse has an Outperform rating and $16 target price on Groupe Aeroplan (AER.TO) after performing a detailed analysis of Aeroplan's Insight & Communications (I&C) business, a division that provides data analytics and consulting services to major retailers.

"Following an extensive financial review of I&C's main competitor dunnhumby, an analysis of recent contracts, discussions with industry experts, and an examination of the overall market opportunity, we remain confident that there is significant upside from the I&C assets as they expand beyond the UK."

Catalysts: "The revenue growth profile of I&C is poised to accelerate with the announced signing of three international agreements over the last year, including CVS Caremark in the U.S., an undisclosed European retailer and Coles in Australia. In our view, within the next several years the existing book of business has the potential to generate up to $100 million in revenues (from an estimated $30 million today) and represent a value to Aeroplan's NAV of up to $200 million, or roughly $1.00 per Aeroplan share. We believe much of that value would be incremental to the street's valuations given the fact that there is limited disclosure on the division and the growth potential is likely under appreciated. Longer-term we believe the valuation upside is much larger as the company secures additional contracts from what appears to be a very strong global pipeline."

View: "We continue to see long-term value in Aeroplan's stock. The Canadian program is expected to generate strong free cash flow, even with the redemption investments in 2011, while the international assets are poised to contribute more meaningfully. Moreover, we believe the international assets are highly scalable, providing a good pipeline for long-term growth. The dividend yield of almost 4% and share repurchase program provide a near-term return."

Valuation: "Groupe Aeroplan is currently trading at a 7.0x EV/adjusted EBITDA, 9% free cash flow yield and 3.9% dividend yield."

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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