Customer loyalty provider, Aimia (OTCMKTS: GAPFF), announced a mixed set of 4th quarter results on Thursday. Although the company reported a loss for its continuing operations, its full-year results were slightly ahead of guidance, and it expects to return to profitability during 2020.
The company’s continuing operations saw revenue for the 4th quarter fall to C$36.8 million from C$47.3 million in 2017. This resulted in an operating loss of C$63.7 million, and an adjusted per-share loss of $0.51, a slight improvement over the previous year.
The stock price was nearly 2% higher on Friday, and investors appeared cautiously optimistic about the company’s new direction.
Aimia’s Turnaround Strategy
Aimia’s financial performance was not unexpected after a challenging year during which it sold the Aeroplan loyalty program to a consortium led by Air Canada. The stock price fell from nearly C$20 in 2014 to a low of C$1.40 in 2017 but has since risen over 160% to $3.88.
Investors were less concerned with the expected loss, and more interested in the company’s strategy going forward. The CEO, Jeremy Rabe, announced a new strategic plan that will include cutting the headcount to 550 — it was 1,500 before the Aeroplan sale, and roughly half of that number moved to Air Canada with Aeroplan.
Aimia’s new objective is to become a leading consolidator within the loyalty program industry. It plans to improve the performance of its existing investments by growing organically and streamlining operations. It also plans to deploy capital to consolidate the loyalty solutions sub-sector.
The sale of Aeroplan raised C$497 million that was used to pay off debt, leaving the company with no debt and approximately C$600 million in cash and investments. Besides using this cash for acquisitions, it will repurchase up to C$150 million of its own stock, which at current levels represents almost 25% of the outstanding shares.
Is the New Strategy A Buy?
The global travel and tourism industry remains healthy and continues to record double-digit growth. For the full 2018 year, Aimia’s revenues were $167 million and given the industry growth, the company should be able to grow that modestly at the very least.
The question then is what type of margin it can earn on that revenue. This isn’t very easy to estimate, and the effectiveness of Aimia’s new strategy still needs to be proven. In the past, Aimia’s margin was volatile and seldom exceeded 8%. Even a net margin of 10% on revenue of around $170 million would put the stock on quite a demanding multiple at current levels.
Until the new strategy produces results, it’s difficult to make an investment case for the stock. However, the share buyback should provide an underpinning for the stock price and may provide trading opportunities over the next year or two.
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