English: The Transat AT headquarters Français : Le siège social de Transat AT (Photo credit: Wikipedia)
TRZ.B : TSX : C$5.75
BUY
Target: C$8.50
COMPANY DESCRIPTION:
Transat A.T. Inc. is an integrated tour operator that specializes in holiday travel and offers more than 60 destination countries.
Transat owns an air carrier, provides destination services, is active in the accommodation ind industry and operates an extensive distribution network.
Much improved results again in Q1/F13
Transat’s (TRZ’s) Q1/F13 results were much stronger YOY, marking the third straight quarter of improvement. EPS came in at a loss of $0.56,
which was substantially better than the loss of $0.79 in Q1/F12. However, Q1/F13 EPS did lag our and the consensus mean estimates of a loss of
$0.48.
TRZ benefitted from capacity control, which produced sufficient price gains to more than offset European weakness. Cost reductions helped too.
Profit over volume focus for Q2/F13 and H2/F13 could pay dividends TRZ is aggressively cutting capacity in an attempt to boost margins through better pricing. The company is targeting a 10% capacity reduction in the key sun destination market for Q2/F13. TRZ’s strategy appears to be working as pricing on booked sun destination business is up.
The story is the same for the key transatlantic market in H2/F13. H2/F13 transatlantic capacity is projected to decline 11% and so far, TRZ has been
able to achieve better selling prices on transatlantic bookings.
Recovery potential remains
TRZ is implementing a wide range of cost, product, and technology improvements, which together with capacity control, are intended to return TRZ to profitability. We continue to model a partial profit rebound.
Forecast cut, target increased
We have cut our forecast modestly, assuming a slightly more cautious rebound given the Q1/F13 miss versus our forecast. This remains a risky
call, based on past experience, as competitor actions could potentially trump TRZ’s profit improvement initiatives. We have increased our target due to our slightly lower debt in our forecast. Our target multiple is unchanged at 4.0x EV/NTM EBITDA in one year. Our valuation multiple is well below the five-year average of 5.3x EV/NTM EBITDA in one year due to high forecast risk. We have maintained our BUY rating due to the attractive rate of potential return to our target.
Related articles
- Air Transat flight attendants agree to $9M in concessions (business.financialpost.com)
- Transat senior executives miss out on bonuses, wage increases in 2012 (theglobeandmail.com)
