AIM.TO - Aimia

[SafetyinNumbers]

It's the same as for AIM.PR.A.

 

Just search on Sedar on Jan 13, 2010 for prospectus.

[petec]

Anyone have any idea why the prefs have moved so much recently?  Is the whole Canadian rate reset market moving, does anyone know (I'm not aware of an index)?  Or is it something specific that I have missed? 

[misterkrusty]

i think this is probably just a case of "good things happen to cheap stocks" (or preferred shares, as it were).  The preferreds were all cheap vs the common and have rallied by a similar amount in the past month or two, while the common hasn't moved much.

 

there are about 3 different ETFs of canadian preferred shares.  the most relevant for Aimia, IMO, is CPD.TO, which has moved up a bit but not by all that much

 

also, I don't think this is due to changes in expected interest rates, as the Series C is fixed rate, and has moved up in similar fashion to the Series B, which is a floater.

 

as a general observation about investing, I'd say that at least half of my long ideas that work out well have had their big upward moves at times that don't correspond to any identifiable event.  and at least half of the potential catalysts that I see when starting a position never pan out.  like Warren & Charlie say, "we've always felt that it's easier to know what's going to happen than when it's going to happen."

[gokou3]

I hold preferred shares of AIM, BCE, BAM, BPO, & TA (last one just sold recently).  I hold the series which benefit from interest rate increases, such as 5-yr rate resets and floaters.  They all went up considerably over the past couple months.  I do think it's related to the yield increase of the 5-yr Canada bonds.

 

https://ca.investing.com/rates-bonds/canada-5-year-bond-yield

[Cardboard]

I agree with Misterkrusty.

 

The AIM preferreds have been ignored for way too long and were the last ones still yielding over 9%. At some point, some upward correction had to happen to put them more in line with other preferreds seen as "risky" such as CF, DC.A and a few others.

 

Cardboard

[SafetyinNumbers]

The gap between the AIM.PR.A and AIM.PR.B is still pretty big while some other spreads between the fixed reset and the floaters have tightened. I just see it as a place to pick up some extra total return.

[Saj]

How do you guys keep track of what looks interesting in the Canadian pref world? I put a page here to start tracking them by current yield in real-time: http://www.conferencecalltranscripts.org/prefs/

 

AIM still at the top as of this post.

 

But it's a pretty crude way to do it, especially with the reset ones. The current yield is of little use if a reset is coming up soon, so don't just blindly use the list, dig deeper into the security.

 

Is there a better way out there to track these that someone's already doing? I couldn't find anything better than quarterly updates so that's why I put this up.

[sculpin]

Pretty crazy that the yields on the AIM prefs are still > 7% with the amount of cash flow, and improvements in the business being seen. Glad to see the clean up of the corporate structure and sell off of the non core assets.

 

 

Neil Linsdell, CFA | nlinsdell@iagto.ca | 1.514.499.0158

Associate: Dimitri Troulis | dtroulis@iagto.ca | 1.514.284.4180

Q4/16 Better than Expected, with More Improvements in 2017

 

Aimia reported Q4 results last night after the close. A conference call will be

held this morning at 8:30am EST (dial-in: 1-888-231-8191 or webcast).

 

Highlights

 

 Q4 gross billings were down less than expected, at -5.9% YoY (or -0.6% in

constant currency) to $647.5M, from $688.2M last year. Results were

above our forecast of $643.3M and consensus of $640.8M (range: $610.5-

652.2M). Excluding currency impacts ($36.3M of the $40.7M decline in

gross billings), primarily from weakness in the GBP, gross billings were

broadly stable.

 

 Americas Coalitions gross billings increased 0.8% to $347.7M (54% of gross

billings). Aeroplan loyalty unit gross billings were up 2% with higher

purchase volumes and active financial card base, in addition to higher gross

billings from Air Canada (AC-T, Not Rated) due to increased capacity.

 International Coalitions gross billings increased 1.9% (in constant

currency) to $189.5M (19% of gross billings). Nectar loyalty unit gross

billings were up 4% (in constant currency) benefitting from Sainsbury

Christmas bonusing campaigns. Also, Mail Newspapers will launch as a

major new Nectar partner during Q2.

 

 Adj. EBITDA of $64.7M (10.0% of gross billings) was up from $63.2M (9.2%

margin) last year and above our forecast of $59.2M (9.2% margin) and

consensus of $57.3M (8.9% margin), primarily due to Americas Coalitions

performance (higher gross billings and progress on operating expenses).

 

 2017 guidance – flat topline, but improving margins: Gross billings (core

business) were $2.1B (roughly flat from $2.142B in 2016). Adj. EBITDA

margin (core business) was ~12% (up from 11.2% on comparable segments

in 2016). FCF before dividends paid is for $220M+ (up from $206M in

2016).

 

 Concern over the Air Canada renewal is a non-issue in our opinion. There

is far too much value for both parties for the program to not be renewed.

In 2016, Air Canada paid ~$250M to Aimia but received more than double

that amount back through reward redemptions.

 

First Impression: Positive

 

Q4 results were better than expected, with growth in the Canadian Aeroplan

business, and margins showing signs of improvement from cost reduction

initiatives. The Company delivered on its 2016 guidance and provided 2017

guidance that highlights stability across its main coalitions and a simpler, more

focused business generating better profit margins and increased free cash flow.

While the environment remains challenging and currency headwinds persist,

the Company’s efforts to simplify the business lines and control costs should

result in a more efficient and profitable operation. Beyond this, we remain

convinced that Aeroplan and Air Canada will renew their partnership beyond

2020, providing significant relief to investors.

[samaniv]

 

Are you still holding the AIMIA preferreds? If so, which series?

 

I hold a fair amount of the AIM.B.

 

I'm fairly new to preferred share investing and am curious as to whether, after the contract negotiation with Air Canada, we would expect these to trade near par again?

 

It seems there are still some other Canadian preferreds trading at a discount to PAR. I am happy to wait and collect the  7.5% dividend while I wait (which as you noted, has great interest coverage).

 

However, we are really waiting for the market to agree with us in terms of the creditworthiness of AIMIA. Once they do, then we would expect it to trade near PAR again. I think the contract renegotiation would lift some uncertainty and hopefully push to be a catalyst, but not guaranteed.

 

 

[Vanshon]

I hold some B's and C's. I had some As but traded them for Bs when the spread between them became more than $1.30.  I think with a decent contract renewal you'll see some jump due to the removed uncertainty but they won't move back to par.

Since they are rate reset preferreds a major component of where they trade is based on the Canadian interest rate. Since the rate was higher when they were issued  part of the move down has been in tandem with the lowering of interest rates. Interest rate increases or an expectation of them would help to move them higher.  Given the real estate situation in Canada right now it's hard to see a significant move up in interest rates in the near future but I'd be happy to be wrong about that.

[Cardboard]

https://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aAC-2469995&symbol=AC&region=C

 

Really bad news. It is time for an activist to take-out these clowns: eliminate the dividend, buybacks, cut management salaries, liquidate non-core, etc.

 

Cardboard

[clutch]

I sold my preferreds at a significant loss...

 

[Yours Truly]

Timber !

[Cardboard]

Although not trying to minimize the impact, really sucks, it is hard for me to believe that the company is not worth $773 million or the total value of the debt and preferreds at par. This does not take into account any spare cash or around $120 million.

 

Just Club Premier in Mexico for which they own 48.9% has 5 million customers already and growing or the same as Aeroplan and is more profitable. Contracts with TD and CIBC will continue to exist until 2024.

 

This will be sold, restructured or Air Canada may even revise their strategy as this may be a huge negotiating tactic. Starting their own program is an expensive venture and I am thinking that Aeroplan members will voice a lot of concerns with Air Canada.

 

Cardboard

[Uccmal]

I am not doing anything with my prefs. The payouts will keep coming until the company goes bust.  My concern is that people will stop collecting rewards if there is no exclusive with AC.

 

As to the frequent flier points.  AC is in a really bad optics spot.  Screwing your frequent fliers like this will make any future programs they try to start a nonstarter at best. 

 

As you said Cardboard there are all sorts of options.

 

In light of this news I cant believe the CEO and Board didn't cut the dividend.  And whats with a buy back.  They should immediately be in cash conservation mode. 

 

Not a huge position but still hurts. 

[doc75]

Although not trying to minimize the impact, really sucks, it is hard for me to believe that the company is not worth $773 million or the total value of the debt and preferreds at par. This does not take into account any spare cash or around $120 million.

 

Just Club Premier in Mexico for which they own 48.9% has 5 million customers already and growing or the same as Aeroplan and is more profitable. Contracts with TD and CIBC will continue to exist until 2024.

 

This will be sold, restructured or Air Canada may even revise their strategy as this may be a huge negotiating tactic. Starting their own program is an expensive venture and I am thinking that Aeroplan members will voice a lot of concerns with Air Canada.

 

Cardboard

 

I agree that the selloff in the prefs might be overdone, but....

 

- I think there's very little chance this is a negotiating tactic.  AC is looking at this as a growth opportunity, and can certainly implement something better than Aeroplan.  Expensive for sure, but there's a lot of money to be made here. 

 

- My concern is that the loss of the AC partnership makes renewal of TD and CIBC contracts much less likely, or at least makes the contracts much less valuable.  Maybe I'm wrong, but I think people are drawn to Aeroplan almost entirely because of flight benefits.  That's why people want to go and get a TD/CIBC Aeroplan credit card. Surely AC will be looking to partner with the big banks to offer a credit card of their own, just as Westjet has done.

 

- I hold some prefs because I assumed the AC contract would remain in place. But I must admit I don't follow the company very closely.  Have there been any hints regarding the outcome of the Nectar renewal?

 

[doc75]

I am not doing anything with my prefs. The payouts will keep coming until the company goes bust.  My concern is that people will stop collecting rewards if there is no exclusive with AC.

 

As to the frequent flier points.  AC is in a really bad optics spot.  Screwing your frequent fliers like this will make any future programs they try to start a nonstarter at best. 

 

As you said Cardboard there are all sorts of options.

 

In light of this news I cant believe the CEO and Board didn't cut the dividend.  And whats with a buy back.  They should immediately be in cash conservation mode. 

 

Not a huge position but still hurts.

 

Either cash conservation or buying back prefs at the huge discount on offer.  What are they thinking with a buyback of the common???

 

As for AC bad optics:  I was thinking about this, too. People have 3 years of "business as usual" to use their points, and it's unclear how bad it will be to use those points for flights post-2020.  The best optics would be for AC to come to some agreement with Aimia regarding migration of Aeroplan points onto their new program (ie. AC buys the points from Aimia).  It will be interesting to see if there's a lot of consumer backlash, and if the media  makes this a big story.  Air Miles sure got a lot of bad press and had to make some changes as a result.

[Cardboard]

This company should see $600 million in free cash flow (before dividends) before June 2020 or contract expiry with Air Canada.

 

If you look at the Bombardier preferreds, they trade at similar levels right now and it was way worst for Aimia after the open. Does that make sense? Is the level of default risk similar???

 

The EV (excluding the stock) with preferreds at par is around that much. It is a no brainer to stop the common stock dividend, repay debt and try to buyback preferreds on the cheap. That is the best way to retain value for the common long term. What they are doing now is insane.

 

The ratings agencies will hit them and it will force them to re-look at their strategy. Activists could also show up here with the massive decline in the stock and large volume.

 

You put a guy like they have at Atlantic Power in charge here and there is something to do with this situation. I also believe that they must have been really stupid in their negotiation with Air Canada to see such backlash. As an Aeroplan loyalty member, this whole thing is concerning to me and I agree that some transition post 2020 will be required.

 

Cardboard

[Green King]

What air Canada is doing sounds insane. How strong is their competitive position? I mean any of the competitors would love to take over its postition and take their recurring customers.

 

 

[Green King]

The true profit of airlines is per incremental customer. all the profit is the difference between 90 and 91%.

[petec]

I mean any of the competitors would love to take over its postition and take their recurring customers.

 

I don't know the market.  Which of their competitors have the same network on the key flights?

[kab60]

Unless these idiots keep fucking up (paying divys on the commons unfortunately seems like it), I think the preferred is pretty good value here, but it's a hairy piece of shit. As Cardboard said, they spit off cash, so they should be able to pay off the debt completely, and then they still have valuable assets. I really don't understand how the parties haven't come to an agreement, but wouldn't it make sense for Air Canada to just to buy the whole thing now? They just put themselves in a pretty decent bargaining position, and nobody likes building new systems and processes.

[petec]

Aimia also announced the redemption of their 2018 notes - has anyone seen whether that's with cash flows, or with new debt?  If with flows it's good for the prefs.

[samaniv]

Financing maturities profile: The company plans to extend its financing maturities to 2020 with the drawdown of $200 million of its $300 million revolving credit facility.  The proceeds will be used to redeem $200 million of senior secured notes ahead of their January 2018 maturity. This will also have the benefit of reducing the interest rate by around 60bps to 4.4%, whilst maintaining a debt/Adjusted EBITDA ratio of around 2x.

 

 

[misterkrusty]

doc75 - could you clarify this:  "Air Miles sure got a lot of bad press and had to make some changes as a result."

 

I'm not familiar with Air Miles - whose program is this and what happened there?  thanks