Narrow-Moat Amadeus’ Demand Flying Higher in 2023

Narrow-moat Amadeus’ AMS 2022 results and 2023 outlook were ahead of expectations, as an unfavorable change in Russian law was more than offset by new business and demand recovery. We plan to lift our EUR 60 fair value estimate by a low-single-digit percentage, leaving the shares slightly undervalued. Narrow-moat Sabre trades at a larger discount to our $10.50 fair value estimate but will likely require patience, given its Very High Uncertainty Rating (versus High for Amadeus) and larger 2023 headwind from the decommissioned Russia business.

Amadeus’ 68% revenue growth was ahead of our 64% estimate for 2022, with slight upside across all three segments. Air distribution (48% of revenue) sales grew 102% in 2022 versus our 97% estimate, aided by volume growth of 92% (90% estimate) and revenue per booking of EUR 5.42 (EUR 5.35 estimate). The gradual volume recovery continued, with fourth-quarter bookings at 78% of 2019′s level compared with 75% in the prior quarter and January and the first half of February at 73% and 79%, respectively. Air IT (35% of revenue) sales grew 46% in 2022 (43% estimate) on slightly better volume growth (81% versus 80% estimate) and revenue per volume (EUR 1.02 versus our EUR 1.00 estimate). Hospitality (17% of revenue) sales lifted 44%, slightly above our 40% forecast. Amadeus guided for 20%-22.5% revenue growth in 2023, implying sales of around EUR 5.4 billion, near our EUR 5.3 billion estimate. Growth is driven by 45 million-55 million passenger boarding wins and further demand recovery, offsetting the loss of 25 million Russian passenger boardings. The growth forecast is above our estimated 13% sales lift for Sabre in 2023, which includes a Russian headwind of a few percentage points.

Full-year EBITDA margin was 36.6%, near our 36.7% estimate, as the top-line recovery offset continued incentive and cloud costs. Amadeus expects EBITDA margin expansion in 2023, and we plan to lower our 40.9% forecast to around 39%, driven by cloud expense.