GXI Sum of Parts Valuation by Beacon earlier in the year Sum of the parts earlier in the year from Beacon Securities. Though we now know they sold Openjaw for $38.5mm so $3mm less than what they assume below...
If we assume that GuestLogix can merely “get its money back” from a sale of OpenJaw, ie. $41.5 million, that would imply a 65% discount to the current valuation of its nearest competitor. We believe potential buyers could include Datalex, Sabre, Amadeus, Travelport or private equity.
At an assumed $41.5 million sale price, GuestLogix could pay off its entire debt, including the debentures at par, and be left with $14.2 million in cash. That would represent C$0.14 per share, or 64% of the market capitalization based on Friday’s close. Now I believe there are now additional liabilities that they had not taken account of (like a large CRA payable - not sure why they would owe tax given their history of losses). Additionally Beacon estimates what the remainder could be worth (I personally think this is wildly optimistic) This Would Leave GuestLogix Onboard. What is it Worth?
Prior to the acquisition of OpenJaw, GuestLogix had ~92 million shares outstanding and had been trading at an average price of C$1.00, or a P/S multiple of ~2x. While that may have been an optimistic valuation based on revenue that was thought to be materialized (ie. IFE, seat upgrades, etc that have all been significantly slower than expected), the reality is that GuestLogix is the largest provider of onboard payment processing in the industry. Revenue was down in Q3, primarily as a result of a very large deployment (we believe Cathay Pacific) that has taken significant resources and squeezed out revenue from other deployments that had to take a back-seat. Once that contract starts to cash flow (expected Q2) and the upfront costs are no longer there (with no associated revenue), we would expect revenue and margins to increase. Given its revenue of $37 million in FY14 (ie. pre OpenJaw), we do not think it is a stretch to think that GuestLogix should be able to generate $40-$45 million, especially given the new contracts (ie. Cathay) as well as the IFE and seat upgrades, which should (finally) start to add material revenue.
We believe an existing onboard player, such as Global Eagle (ENT – US, not covered) or GoGo (GOGO – US, not covered) could be interested as they are battling to “control the cabin”. Global Eagle trades at ~2x sales while GOGO trades at ~3x.
A sale of GuestLogix onboard, therefore, at a minimum of 1x could be attractive. That would imply a sale price of $45 million or C$60 million. At 134.7 million shares outstanding, that would represent C$0.46 per share. Combined with the C$0.14/share cash, that would represent a total value to GuestLogix shareholders of C$0.60/share