Company Reports

Despite uncertainty around the pace of corporate travel recovery and direct connections between major North American carriers and online travel agencies, we see Amadeus' business demand rebounding from the pandemic-caused April 2020 nadir during the next few years. Long term, we expect its leadership position in global distribution systems to endure, driven by its leading network of airline content and travel agency customers as well as its healthy position in software solutions for these carriers and agents. Amadeus is the largest of the three GDS operators (narrow-moat Sabre is number two, followed by privately held Travelport) that control nearly 100% of market volume.

Shortly after narrow-moat Amadeus' 2023 earnings release on Feb. 28, Reuters reported that the company was potentially looking to acquire payment processing firm Shift4 Payments. This sent Amadeus shares down 7% on Feb. 29. From a strategic standpoint, we see merit in the company expanding its payment offering to compete with other travel platforms that have made similar investments to better facilitate the numerous and differing payment options across the world. We think the adverse share reaction is tied to the debt and/or equity that would be required to swallow up Shift4 Payments at a time of elevated uncertainty about the recovery potential of global distribution system industry air bookings.

We see two key investment takeaways from narrow-moat Amadeus’ full-year 2023 results. First, the company continues to execute well, evidenced by solid 2023 sales and EBITDA results and 2024 revenue guidance. Second, it is seeing a negative near-term volume impact from recent direct connections in North America, something narrow-moat peer Sabre highlighted on its recent earnings call. This creates incremental uncertainty on the volume recovery for global distribution system, or GDS, operators. Our Amadeus fair value estimate is EUR 64.

Despite uncertainty around the pace of corporate travel recovery, we see Amadeus' business demand rebounding from the pandemic-caused April 2020 nadir during the next few years. Long term, we expect its leadership position in global distribution systems to endure, driven by its leading network of airline content and travel agency customers as well as its healthy position in software solutions for these carriers and agents. Amadeus is the largest of the three GDS operators (narrow-moat Sabre is number two, followed by privately held Travelport) that control nearly 100% of market volume.

Narrow-moat Amadeus reported solid third-quarter results and reiterated its 2023 sales and EBITDA guidance. Our fair value estimate for the company is EUR 62 per share. We view shares as appropriately valued after its 5% move in reaction to results.

Despite uncertainty around the pace of corporate travel recovery, we see Amadeus' business demand rebounding from the pandemic-caused April 2020 nadir over the next few years. Long term, we expect its leadership position in global distribution systems to endure, driven by its leading network of airline content and travel agency customers as well as its healthy position in software solutions for these carriers and agents. Amadeus is the largest of the three GDS operators (narrow-moat Sabre is number two, followed by privately held Travelport) that control nearly 100% of market volume.

Narrow-moat Amadeus IT shares traveled 4% lower, as we think demand recovery in the first half may have disappointed some investors. Amadeus shares still trade slightly above our EUR 60 fair value estimate even after the modest pullback.

Led by leisure, overall travel demand has remained resilient, supporting our long-held view that there is an ingrained human desire to travel. But we are less sanguine on near-term corporate travel after United Airlines CEO Scott Kirby said earlier this month that the United States is currently in a business recession, with COO Andrew Nocella adding that business travel demand has leveled off for the company. This was followed by Delta Air Lines' June 27 investor day presentation forecasting stable business demand into 2024. Further, the risk of softer economic growth during the next year remains, and numerous nontravel consumer-related companies point to strained demand, which we believe is emanating from persistent inflation, tightening credit availability, and a consumer saving rate of disposal income plummeting to 4.8% in the first quarter of 2023 versus the roughly 9% averaged in 2019.

Despite uncertainty around the pace of corporate travel recovery, we see Amadeus' business demand rebounding from the pandemic-caused April 2020 nadir over the next few years. Long term, we expect its leadership position in global distribution systems to endure, driven by its leading network of airline content and travel agency customers as well as its healthy position in software solutions for these carriers and agents. Amadeus is the largest of the three GDS operators (narrow-moat Sabre is number two, followed by privately held Travelport) that control nearly 100% of market volume.

Amadeus stands to see corporate travel recovery in 2023 from the pandemic April 2020 nadir. Long term, we expect its leadership position in global distribution systems, or GDS, to endure, driven by its leading network of airline content and travel agency customers as well as its healthy position in software solutions for these carriers and agents. Amadeus is the largest of the three GDS operators (narrow-moat Sabre is number two, followed by privately held Travelport) that control nearly 100% of market volume.

Narrow-moat Amadeus reported first-quarter air bookings at 75% of 2019’s level versus 72% last quarter (narrow-moat Sabre’s volumes increased to 61% from 58%), led by Asia-Pacific (16% of total air volumes) improving 8 percentage points from last quarter to 69% of prepandemic marks. That said, Amadeus’ European (30%) and North American (28%) air volumes have not improved since the first half of 2022 from the roughly two thirds and over 100%, respectively, of 2019’s levels, putting into question the rate of corporate travel recovery. That said, Amadeus noted April and May air recovery has continued. Taking it all together, we plan to reduce our 2023 air booking as a percent of 2019’s level to around 80% from 83%. But we plan to slightly increase our air revenue per booking growth forecast for this year to a mid-single-digit percentage lift from low-single-digits, due to a higher overall mix of international volumes. As a result, we don’t expect a material change to our total sales growth estimate of 21%, which sits within management’s reiterated 20%-23% guidance for this year. Thus, we plan to largely maintain our EUR 63 per share fair value estimate, rendering shares fairly valued.

Amadeus stands to see corporate travel recovery in 2023 from the pandemic April 2020 nadir. Long term, we expect its leadership position in global distribution systems, or GDS, to endure, driven by its leading network of airline content and travel agency customers as well as its healthy position in software solutions for these carriers and agents. Amadeus is the largest of the three GDS operators (narrow-moat Sabre is number two, followed by privately held Travelport) that control nearly 100% of market volume.

Narrow-moat Amadeus’ 2022 results and 2023 outlook were ahead of expectations, as an unfavorable change in Russian law was more than offset by new business and demand recovery. We plan to lift our EUR 60 fair value estimate by a low-single-digit percentage, leaving the shares slightly undervalued. Narrow-moat Sabre trades at a larger discount to our $10.50 fair value estimate but will likely require patience, given its Very High Uncertainty Rating (versus High for Amadeus) and larger 2023 headwind from the decommissioned Russia business.

While Amadeus still stands to see material near-term corporate demand headwind from the coronavirus and geopolitical conflict, we expect its leadership position in global distribution systems, or GDS, to endure during the next several years, driven by its leading network of airline content and travel agency customers as well as its healthy position in software solutions for these carriers and agents. Amadeus is the largest of the three GDS operators (narrow-moat Sabre is number two, followed by privately held Travelport) that control nearly 100% of market volume.

Like narrow-moat peer Sabre, narrow-moat Amadeus’ third quarter demand trends showed gradual improvement, tracking in line with our forecast. We do not plan to materially change our EUR 60 valuation, leaving shares undervalued. Amadeus offers investors industry leading revenue share, margins, and liquidity profile, but at current prices we prefer Sabre shares, which trade at 8 times 2024 EV/EBITDA versus 10.5 times for Amadeus. In our view, Sabre provides investors similar demand recovery and market share trends, supported by its completed migration to the cloud by the end of 2024, which we believe will be ahead of Amadeus’ transition (the move to the cloud lowers compute costs and speeds product innovation).

Despite enduring travel demand into the fall of 2022 and our view that it can continue into 2023, investor concerns around future trips and credit availability have grounded share price performance across the industry. As a result, we see meaningful opportunities to book investment stays in Sabre, Accor, Booking Holdings, and Norwegian, which trade at 64%, 42%, 44%, and 54% discounts to our $15, EUR 37.50, $2,900, and $28 fair value estimates, respectively.

While Amadeus still stands to see material near-term corporate demand headwind from the coronavirus and geopolitical conflict, we expect its leadership position in global distribution systems, or GDS, to endure during the next several years, driven by its leading network of airline content and travel agency customers as well as its healthy position in software solutions for these carriers and agents. Amadeus is the largest of the three GDS operators (narrow-moat Sabre is number two, followed by privately held Travelport) that control nearly 100% of market volume.

While Amadeus still stands to see material near-term corporate demand headwind from the coronavirus and geopolitical conflict, we expect its leadership position in global distribution systems, or GDS, to endure during the next several years, driven by its leading network of airline content and travel agency customers as well as its healthy position in software solutions for these carriers and agents. Amadeus is the largest of the three GDS operators (narrow-moat Sabre is number two, followed by privately held Travelport) that control nearly 100% of market volume.

We do not plan to materially change our EUR 60 valuation on narrow-moat Amadeus, as its second-quarter update is tracking toward our 2022 expectations, leaving shares fairly valued.

While Amadeus still stands to see material near-term corporate and European demand headwinds from the coronavirus and geopolitical conflict, we expect its leadership position in global distribution systems, or GDS, to endure during the next several years, driven by its leading network of airline content and travel agency customers as well as its healthy position in software solutions for these carriers and agents. Amadeus is the largest of the three GDS operators (narrow-moat Sabre is number two, followed by privately held Travelport) that control nearly 100% of market volume.