Aimia (TSE: AIM) (OTC: AIMFF) - Research Summary

Date of Publish: 03/12/2021

The Company

Name: Aimia (TSE: AIM) (OTC: AIMFF)

Market Cap: CAD $437m

Current share price $4.73

About

Aimia is an investment holdings company. It has previously specialised in airline loyalty program companies, but now also holds a range of other businesses both public and private. It’s largest holding is a 48.9% stake in PLM Premier. PLM is travel loyalty program operator (I.e. air-miles and credit card rewards) in Mexico, which is jointly owned by airline AeroMéxico.

Executive summary

·       Price target between $5.80 to $7.00 within the next 3 to 6 months

·       Sale of PLM to AeroMexico, providing more cash than Aimia’s current market capitalisation

Special Situation Detail

1.     Sale of largest asset

2.     Narrowing of discount to Net Asset Value (NAV)

Sale of largest asset

AeroMexico is in the process of acquiring Aimia’s stake in PLM (airline reward company). They are offering to pay the USD $375m plus Aimia’s share of the cash on PLM’s balance sheet c. USD $57m. So a total of CAD $540m in cash to Aimia, who’s current market capitalisation is CAD $437m.

AeroMexico is expected to emerge from bankruptcy in Q1 2022. As part of the recapitalisation negotiations for AeroMexico, further debt is being raised by AeroMexico to buy the remaining share of PLM from Aimia in cash.

We believe the market has failed to price in the very high chance of this sale, because of the complexities around bankruptcy proceedings and because Aimia is underfollowed by analysts.

From reading the bankruptcy documents and transcripts, we believe the probability of selling the PLM stake for c. CAD $540m to AeroMexico, has recently increased and believe it to be around 90%.

Discount to NAV

We have conservatively valued the 5 additional holdings Aimia has on its balance sheet at CAD $254m. If we add the cash ($89m) and subtracted the debt (CAD $311m), we get an additional net asset value of CAD $32m in addition to the value of PLM.

This gives us a conservative Net Asset Value of CAD $572m ( CAD $32m + CAD $540m).

With 92m shares outstanding this gives a NAV price per share of CAD $6.22.

We do expect some discount to NAV to remain after the sale of PLM, as is often the nature of investment holding companies. However given that 94% of NAV will be made up of cash after the sale of PLM, we believe it is unlikely that the NAV will have a discount of more than 10%.

If we assume a 5% discount to NAV once PLM has been sold, then the share prices should be at least $5.90 (95%* $6.22). We believe the price per share will exceed $5.90 since our valuations of Aimia’s other holdings are heavily conservative.

Therefore we arrive at a price target of $5.80 to $7.00, which is a 22% to 48% appreciation.

Given the short timeframe of this opportunity, the gains on an annualised basis look even more attractive.

Why does the opportunity exist?

It is a ‘small cap’ Canadian listed investment holding company with little analyst coverage.

The bankruptcy element has potentially hidden the near term catalyst (sale of PLM) from the market, given the details are hidden in the legal documents.

The court proceedings are likely to reach a milestone on 12th December 2022, where it is expected that the finalised acquisition of PLM will be announced. We expect a press release at this date, so it is advised to buy before then.

Margin of safety

A buyback has been announced which covers the ability to purchase 8% of shares. So this might sustain prices in the shorter term. It is also likely that additional buybacks and dividends will be announced following the sale of PLM.

In the unlikely event that PLM sale doesn’t go ahead, there may be some short term selling from investors counting on this sale. However Aimia is already trading at a large discount to NAV, so it is unlikely that the discount will deepen by that much and is likely to recover.

PLM is a very profitable company, with strong balance sheet and proven to remain profitable even during Covid lockdowns. So in the event of a non-sale it shouldn’t have a large impact to the valuation of the company.

For the reasons above, we assess the downside risk as limited and a non-sale an unlikely event. Therefore we view this as an asymmetric risk reward opportunity, with the upside being much larger and much more likely.

Conclusion

·       Opportunity for a short term 3 – 6 month return, of between 20% to 50%+

·       Asymmetric risk reward, with the sale of PLM expected to be highly likely

Notes

We also carried out a Monte Carlo simulation varying certain assumptions and how they might impact the price. This helped us develop conviction on the likelihood of positive outcomes.

The results of our Monte Carlo simulation, showed that there's a 70% chance of the price being higher than $4.70 and 30% chance of it being higher than $5.85. This should be viewed as indicative, not fact, and is based on what we believe are prudent assumptions.

Disclaimer:

Nothing here is investment advice. Do your own due diligence. We will never give any investment advice on this website. We may choose not update this idea in the future, so don’t count on us to provide updates. We welcome feedback good and bad. Thanks for reading!

Special Situations Global Equities is long $AIM common stock.