Aimia shows Good Earnings but no Nectar

       Aimia just reported it's fourth quarter and annual earnings.Adjusted EBITDA was a pleasant surprise but there was little mention of the sale of Nectar except for the $100 million reduction in debt as promised.This transaction should have bolstered fourth quarter earnings substantially but it did not. The footnotes show that Aimia took a $180 million impairment charge for disposing of Nectar instead of adding profit to adjusted EBITDA.There is a discussion of the Nectar transaction on Workathon (dated February 10,2108)Someone has  been working hard behind the scenes as there have been disposals of  Nectar and other non-core assets along with non-cash impairment charges.       

The Fourth Quarter

Aimia had a shock in Q3 (related to the renewal of it's Aeroplan program) but  it has had time to adjust so things are more  normal in this quarter.Gross billings were $565 million and revenues at $399 million down only 9% from $440 million in 2016.Adjusted EBITDA was $66 million which is up 58% from Q4 in 2016.This is partly because adjusted EBITDA margin is higher in this quarter.Also it is possible that earnings from disposals added to EBITDA.While free cash flow fell slightly from $233 million to $197 million.Things seem almost normal to this blog.

  Annual Summary

A clearer picture of how well Aimia has recovered can be seen with  their annual figures. Firstly their 2017 annual guidance was fairly accurate.And gross billings in 2017 are down only 9% from 2016 while revenues are down 7% to $1624 million.However annual adjusted EBITDA is up 15% from 2016 to $190 million.And free cash flow was down only $7 million to $114 million.So in conclusion, in 2017 Aimia has suffered a little from  loss of gross billings and revenues;but there has been no negative repercussions on earnings. And when these 2016 annual figures were reported the price of Aimia shares were trading around $8.50.Now with fairly comparable figures it is trading at $1.75 and this blog finds it surprising that it is not trading around $4.00.

2018 Outlook

The main reason that Aimia is not at $4.00 per share is because of the loss of the Aeroplan contract with Air Canada in June2020. And it appears as if Aimia will not try to negotiate a new amended contract.Instead it seems to have tightened up it's Aeroplan program.But it has adjusted well in 2017 and 2018 is looking even better.Guidance for 2018 shows gross billings falling to $1.3 billion.This blog believes that if a small acquisition is made of a new loyalty program that a more reasonable figure is $1.6 billion.But Aimia has been at work cutting it's expenses and so it's estimated 2018 adjusted EBITDA margin has moved to 18% rather than 14% in 2017. Aimia has also disposed of less profitable programs including Nectar.This means that adjusted EBITDA will go up (to $250 to $280 million) in 2018 not down.However it should be pointed out that Aimia is still building experience on the amount of redemptions from their Aeroplan program.Estimated free cash flow is $125 to $140 million which again is up from the $113 million reported in 2017.Interestingly enough this is strong enough to consider reinstating a small dividend by the second quarter.This blog feels that a small dividend along with meeting guidance will send this stock back to the $4.00 level.            

             

Summary

 A year ago Aimia shares were trading around $9.00 per share but it took quite a tumble to a low of $1.00 per share.This was caused by the loss of the Air Canada Aeroplan contract.Aimia responded by cutting it's dividend.But is appearing tp be more and more of an emotional reaction.The stock price was trading as high as $3.90 recently and should go back up if redemptions are the same as in the last 3 months.           use Blogdaleupsome for analysis of Cdn. financials ;  use Blogdaleupsome for analysis of Cdn. financials