Partnerships With IndiGo And Marriott Will Strengthen Position In Travel And Hospitality

Key Takeaways

• Strategic focus on NDC technology and partnerships positions Amadeus to capture more bookings and increase Air Distribution revenue.
  
• Investments in AI and cloud technology may drive operational efficiency and positively impact net margins and earnings.
  
• Delays and competitive risks in payment solutions and IT adoption present challenges, potentially impacting revenue growth, market share, and earnings across major segments.

Catalysts

Operates as a transaction processor for the travel and tourism industry worldwide.

• Amadeus's strategic focus on NDC technology and agreements, including partnerships with major airlines, positions it to capture more bookings and potentially increase revenue from the Air Distribution segment.
  
• Investments in new products like Navitaire Stratos for low-cost carriers aim to enhance Amadeus's retailing capabilities and customer integrations, which may drive revenue growth and improve net margins.
  
• The ongoing implementations for major hospitality clients like Marriott and Accor are expected to strengthen Amadeus's position in Hospitality & Other Solutions, potentially boosting revenue growth and margins in this segment.
  
• Focused investments in AI, cloud migration, and other technological developments could lead to operational efficiencies and cost savings, potentially positively affecting net margins and earnings.
  
• The entry into high-growth markets like India, especially through partnerships with key airlines like IndiGo, provides Amadeus with substantial growth opportunities that could increase future revenue and market share.

Amadeus IT Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Amadeus IT Group's revenue will grow by 8.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 21.3% today to 22.7% in 3 years time.
• Analysts expect earnings to reach €1.7 billion (and earnings per share of €3.76) by about December 2027, up from €1.3 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 25.5x on those 2027 earnings, up from 23.4x today. This future PE is greater than the current PE for the GB Hospitality industry at 23.6x.
• Analysts expect the number of shares outstanding to grow by 1.6% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.13%, as per the Simply Wall St company report.

Amadeus IT Group Future Earnings Per Share Growth

Risks

• The delays in implementing new payment solutions, particularly in Asia-Pacific, could slow revenue growth in the Hospitality & Other Solutions segment as the company faces challenges onboarding new customers and expanding internationally.
  
• The Air Distribution business experienced impacts from reconnections between a large online travel agency and carriers in North America, which, despite only marginally affecting revenue, indicates some volatility in booking growth that could affect future revenues.
  
• Amadeus is dealing with the competitive risk of airlines selecting rival IT solutions, exemplified by Riyadh Air not adopting Amadeus Nevio. This competition could impact its ability to capture market share and thus affect future earnings in the Airline IT segment.
  
• Challenges in expanding the Hospitality segment, specifically in achieving anticipated growth in payments, could lower overall revenue growth expectations for the division, impacting margins and earnings growth potential.
  
• The expectation of slowing growth in revenue per booking for Air Distribution as mix effects normalize suggests potential downward pressure on revenue growth, which could impact earnings and net margins if overall booking volumes don't compensate.

Valuation

• The analysts have a consensus price target of €73.94 for Amadeus IT Group based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €85.0, and the most bearish reporting a price target of just €65.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be €7.6 billion, earnings will come to €1.7 billion, and it would be trading on a PE ratio of 25.5x, assuming you use a discount rate of 9.1%.
• Given the current share price of €68.22, the analyst's price target of €73.94 is 7.7% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.