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Holmes Osborne, CFA
Holmes Osborne, CFA
Articles (199)  | Author's Website |

Spain's Amadeus Is Putting Up Great Numbers in Airline Software

Company provides much of the software used to reserve airline tickets. Growth has been phenomenal

Amadeus IT Group SA (XMCE:AMS) (AMADF) (AMADY) is a Spain-based information technology company that provides support for the world’s largest airlines and airports. Growth has been incredible as travelers are turning to the web for reservations.

The stock trades for 60.83 euros ($71.65), there are 437.75 million shares and the market cap is 26.6 billion euros ($31.6 billion). Earnings per share are 2.07 euros and the price-earnings (P/E) ratio is 29.4. The dividend is 0.86 euros and the dividend yield is 1.4%. It takes $1.19 to buy one euro.

Sales grew from 3.1 billion euros in 2013 to 4.47 billion euros in 2016. That is awesome growth! Income grew from 563 million euros to 826 million euros over that time frame. Free cash flow was an amazing 1.388 billion euros last year and the free cash flow yield is 5.2%. The balance sheet shows 624 million euros in cash and 432 million euros in receivables. The liability side shows 696 million euros in liabilities and 4.3 billion euros in debt. Not a bad balance sheet considering the high free cash flow. The S&P 500 rates Amadeus’ rate as BBB. I would agree with that rating.

The American depositary receipts (ADRs) above are pretty thinly traded. You might be better off buying in Madrid. The bid-ask spread would probably be better.

Amadeus provides tech for British Airways, Qantas (ASX:QAN), Finnair (OHEL:FIA1S), Iberia, American Express (NYSE:AXP), Carlson Wagonlit, TUI AG (LSE:TUI), Siemens (STER:SIE), IBM (IBM) and Lufthansa (STER:LHA). Amadeus is the largest distributor of leisure packages worldwide and works with thousands of travel agents. If you book a ticket with an airline, buy travel insurance and get a hotel to go along with it, there is a good chance Amadeus is involved. If you have travel points, guess who is keeping track? Amadeus. Making sure your credit card miles jive with your airline miles? Amadeus. Where is your lost luggage? Amadeus. Get a text letting you know that your flight is late? You can see why big corporations use the platform. Looking through the annual report and other filings, I also see other customers, including Southwest (LUV), Ryanair (RYAAY), Kuwait Air, Intercontinental Hotels (IHG), Copenhagen Airport, Swiss Air and China Air. This link will take you to a page that shows hundreds of services the company provides. I was curious to see what travel search engines Amadeus partners with. So far, I have found one named flybe out of the U.K.

For the first nine months of the year, bookings grew 6% and passengers boarded grew to an amazing 1.228 billion. There is a good chance you and I are customers. Revenues grew 8.9% and EBITDA grew 10.1% to 1.466 billion euros. Adjusted profit grew 14.7% and free cash flow increased 14.5%. Impressive growth. It looks like Air Canada and Avianca Argentina are new customers. Six new airports have signed up for expanded services, including Hong Kong, New Orleans and Calgary. Its Altea Suite platform allows airlines to run reservations, inventory, check-in and departure control operations.

Back in September, Amadeus’ software had a glitch and, boy, was it felt around the world. Reagan International, London Gatwick and Southwest Airlines were affected, to name just a few. I bet a good hacker could really throw a monkey wrench into the whole thing.

There are a few other competitors in the space. One such is Sabre (SABR). Sabre has put up some pretty good growth numbers too. Here is a good article on Seeking Alpha. ISO is a German company that is prominent in the space too. I would say the barriers to entry are fairly high.

I found the stock by perusing FPA International’s list of holdings on the SEC website. I had never heard of the company and was surprised by the scant attention it receives in the U.S. If you are like me, I assumed the airlines had their own tech department that did this stuff. Nope. It looks like Amadeus is the big boy in this space.

You can see the barriers to entry. No one wants to do this stuff because it is too complicated. It is better to outsource it. I find this stock interesting. Growth and profitability are amazing. I cannot believe what little coverage Amadeus receives in the U.S. If this were an American company, you would read something on it every five minutes. If you like tech, you need to put this on your radar.

Disclosure: We do not own stocks mentioned.

About the author:

Holmes Osborne, CFA
Holmes Osborne is principal of Osborne Global Investors.

Visit Holmes Osborne, CFA's Website


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