AMADF - Amadeus IT Group: Unreasonable Reasons For Not Taking Off Yet

2024-07-03 01:33:58 ET

Summary

• Amadeus IT Group is rated as a buy due to solid revenue and profitability performance, expecting to surpass its pre-COVID levels by FY2024.
• Market uncertainty stems from American Airlines' move to eliminate GDS intermediaries, but Amadeus is well-positioned to adapt with its NDC services.
• The Company's strong competitive advantage in the GDS industry and gradual adoption of NDC services make it a promising long-term investment.
• I rate the stock as a buy, as the market is not recognizing the strength of Amadeus' business model in the next few years.

I rate Amadeus IT Group (AMADF) (AMADY) as a buy as the company keeps growing with a solid performance in revenues and profitability while almost recovering its pre-COVID levels in 2019 and 2024. However, since my last article in February 2024, the stock has not gone anywhere despite its good performance in the first quarter of 2024 and the good guidance for 2026 given by the management recently. I think that what is causing uncertainty in the market is that there was some news in 2023 related to a war between American Airlines (AAL) and the Global Distribution Systems ((GDS)) suppliers with the purpose that the carrier eliminates intermediaries to reduce costs while having better control in the relationship with its customers. Under this scenario, the market might assume that other carriers would follow American Airlines' moves, which might reduce the use of the GDS, and companies like Amadeus would face a disruption, knowing that its GDS business represents around 51% of its total sales. In this sense, I will provide information that proves that those fears are ill-founded, and that Amadeus is a very good long-term investment.

Context

Amadeus achieved revenue growth of 21.29% in FY 2023 YoY, 68% growth in net income, and 46.8% growth in operating income in the same period. In addition, in FY 2023, free cash flows ((FCF)) reached 1,195 million euros, surpassing the FCF generated in FY 2019, the pre-COVID-19 year, of 1,066 million euros. The growth of FCF was 36.84% in FY 2023 YoY....

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