RE:RE:RE:RE:RE:RE:Air MilesThe FED is not going to cut rates, no chance. At best, they pause. But, I believe the market is overly hopeful on even that given that only 40 days ago Powell warned on the expectation of pain to come.
Food for thought... would DIV consider buying HOT.UN? The latter is trading below it's real value, is a US play with potential to grow with capital infusion. The current distribution is 8% which is still 70% down since covid. With covid restrictions disappearing daily, travel and leisure is in the early stages of recovery... barring a major recession of course. But, that could work in DIV's favour for a takeover.
Tommy123 wrote: I'd say that there may be companies out there now that are starting to struggle and/or don't see much of a path forward in a recession that would welcome a cash infusion from DIV to keep them going. So if Sean can get a discount on a new acquisition, or at least have fewer competitors trying to outbid each other and severely overpaying as tends to happen, it may be better to buy a new royalty now rather than wait until next Spring when the market is now anticipating US Fed rate cuts to occur (as according to the news today, a pivot is expected very soon, hence the stock market soaring), at which point there may be more competition for DIV's royalty acquisitions.
But that's really dependent on what companies are going to market now, and for the sake of DIV being opportunistic, I hope that there are many companies now realizing that with soaring debt payments, they need to sell off future profit to pay down debt ASAP. Plus, in the Globe and Mail article from earlier this year, Sean mentioned that they're looking in the US, since Canada is too small a market now for DIV to make any decent acquisitions. I do have a few thoughts on what the US targets could be, since a few franchises come to mind that opened far too many locations and loaded up on debt during the Covid low interest rate environment, and now need some help. But that will be another post :)
nedstar71 wrote: I see the press release for a new president of the Air Miles division announced April 11th if that's what you are referring to. I like your positive outlook, but Loyalty Ventures share price is off over 90% since he was appointed. Stocks on the Nasdaq don't trade at $30 million market caps, not for long anyway. I'm weighing whether this is priced in to DIV or not, and fear in this market environment it may not be. With DIV headline risk is always a concern and termination of the Air Miles royalty would not be a good one as many are likely unaware the parent company is in as bad shape as it is.
I don't want them to do another royalty acquisition right now. With rising interest rates and a potential whopper of a recession on the horizon, unless they are getting the deal of the century it's best to wait for a more stable economy.
Tommy123 wrote: The parent company of Air Miles recently appointed a new CEO early this year to turn it around. Apparently he has some great experience building up loyalty programs, so I'm very optimistic that Air Miles will be stronger than ever. Let's revisit in a few years, once he's has a chance to make his mark with revamping the program and getting a few new sponsors.
DIV's shareprice is already down 15%, so I presume an Air Miles bankrupcy may be priced in. I can't imagine DIV's shareprice could go much lower, considering it's aggressively growing royalties, and just announced a big dividend increase. It's best in breed for royalty plays, without a doubt. I've mentioned it before, but look at Alaris and others that aren't growing their dividend at all. In fact, Alaris just announced that a royalty is pulling out, which will hurt their ability to increase their distribution.
Since the DIV CEO Sean gets paid a portion of new royalties that he brings in (I think it's a few percent), I'm sure he's actively working on new deals to make some real money. Covid through a curveball into their aggressive growth, but I'm sure Sean wants to get paid, so I would hope there's some announcements soon.
babedinkleman wrote: nedstar71 wrote: I'm more concerned about Air Miles parent company going bankrupt, which is apparently may be grounds for terminating the licence completely according to the news release announcing the acquistion in 2017.
Loyalty Ventures, the operator of Air Miles is now trading at a market cap of just $30 million, down from $700 million at the beginning of the year. When a company is trading down 95% at $30 million with debt of half a billion dollars there isn't much question what is about to happen.
I'm ok with Air Miles slowly dissolving away but don't like the headline risk of the parent company going bankrupt and DIV losing the royalty entirely. Not to mention the revenue lost. Air Miles was 15% of revenue last quarter.
Yeah that has been concerning me for a while.....and just reread that news release.
"The Licenses may only be terminated in certain limited circumstances, including bankruptcy or insolvency of either party and are subject to cross termination provisions." I'm unsure what cross termination provisions are but I'm guessing if they do go bankrupt there wouldn't be much recourse if said provisions weren't paid. Yeah not a great sign Loyalty Ventures is now trading at 30 million market cap.....considering DIV paid 53.75 million CAD just for the 1% gross billings royalty.....LOL. I had no idea it had gotten that low. The market is signalling it's going Chapter 11.....although it's up a tad today.....who knows. Air Miles going bye bye wouldn't be the end of the world for Diversified.....but yeah that headline risk in a this market environment would not do the share price any favours for sure and 15 percent of revenue would be a fairly significant hit.