Recent acquisition aims to take payment company beyond just the airline extras market.
Investors looking to make money off the extras that airlines charge passengers for everything from seat upgrades to in-flight food are taking a look at GuestLogix Inc., a small-cap company behind the payment technology.
Shares of Toronto-based GuestLogix, which includes such customers as WestJet Airlines Ltd., British Airways PLC and China Southern Airlines Co. Ltd., have been volatile and underperformed the market over the past year amid growth concerns and some recent shareholder activism.
However, many analysts say the stock is now undervalued, especially after a recent acquisition that expands its revenue source beyond on-board services.
Late last year, GuestLogix bought Dublin-based OpenJaw Technologies Ltd., broadening its reach to include transactions in the hotel, car-rental and travel-rewards space through brands such as Aeroplan and Four Seasons Hotels and Resorts.
GuestLogix, which receives a fee each time a transaction is processed through its platform, is aiming to grab a bigger piece of the growing ancillary airline revenue market, which industry forecasts say could grow to $180-billion (U.S.) by 2020, from about $50-billion today.
The stock market hasn't factored in the growth potential for GuestLogix from the OpenJaw deal, said Ryan Modesto, managing partner at 5i Research, a Kitchener, Ont.-based investment research firm that targets retail investors.
"We think there are a lot of cross-selling opportunities that are being overlooked," said Mr. Modesto, whose company is starting a growth portfolio and is considering including GuestLogix in it.
He sees the company's valuation as inexpensive compared to its peers and calls recent shareholder activism a "non-issue."
Goodwood Inc., a Toronto-based hedge fund that says it owns about 4 per cent of GuestLogix shares, called for a shakeup of the board in early February, amid a more than 30-per-cent drop in the stock over the past year. GuestLogix says it has a plan in place to improve board independence and has been bringing on more independent directors in recent weeks.
GuestLogix chief executive Brett Proud said the company hopes to resolve any shareholder concerns before the next annual meeting, scheduled for June 23.
As for the company's lagging stock price, Mr. Proud believes investors may be waiting to see some results from the OpenJaw deal, which closed on Dec. 23.
"I think the 'show me' definitely comes when we announce Q1 in May," Mr. Proud said. "I think there is a lot of enthusiasm that hasn't necessarily yet turned into investing."
A recent bought deal worth $49-million that wasn't fully subscribed at its price of 95 cents per subscription receipt has also weighed on the stock, analysts say.
GuestLogix shares are trading around 70 cents, which is down from a 52-week high of around $1.50 a year ago. Of the six analysts who cover the stock, five have a "buy," while one says "sell," according to S&P Capital IQ. Analyst price targets range widely between a low of 45 cents to a high of $2.75. The consensus is $1.27, according to Thomson Reuters.
"We believe the company is incredibly well positioned as the enabler of the airlines ancillary revenue strategy both on-board and now increasingly off-board," said Beacon Securities analyst Doug Cooper, who has a "buy," on the stock and $2.75 price target.
Mackie Research analyst Nikhil Thadani has a "speculative buy," and $1.50 target pointing to the first-quarter results as "very important" to demonstrate whether the OpenJaw deal will drive the stock higher.
Cantor Fitzgerald analyst Justin Kew has the lone "sell" on the stock and a 45-cent target, citing in part slowing gross transaction value, or GTV, amid increased competition for services from other retailers along travel routes.
"The GTV growth is a leading indicator of the revenue trend and we believe that the transaction processing revenue will follow the same trajectory as GTV," said Mr. Kew. "GuestLogix hasn't demonstrated that the transaction processing business can scale effectively."