Call: Friday February 2, at 12:30 pm EST
Join us for a call on Sabre to review our change of position on shares of Sabre from bear to bull.
Details to follow.
The bull case:
- Hotel Solutions should step up on chunky next leg of Wyndham implementation in 4Q17-2Q18
- The drubbing of Airline Solutions is complete with the exit of Southwest. The next step is positive with the ramp of LATAM in 1H18.
- Much discussed, now forgotten, Abacus related FlightCentre revenue increases arrive now
- Recently reset sell side sentiment after a buzzy downgrade that appears to have an incorrect premise
- Potentially most bullish: CFO is leaving (more on this in Part 2)
- RIF impact likely better than guided
- Puts/takes on FCF leave us looking for 5-20% y/y increase in 2018 FCF versus Street at 3%
- Current tracker results make 4Q/1Q topline results appear close enough to Street revenue estimates for 4Q/1Q
We know the bear case very well. We think the elements of the bear case are long term in nature which gives management some near term wiggle room to adjust.
The bear case:
- The airlines are getting their fingers into the offer creation part of the industry, either via direct-connect incentive structures, or through the NDC. Offer creation = GDS. So obviously, not good. But this is a long term problem. And in the near term the inflection in growth of technology complexity for the industry should be an opportunity for traditional technology partners. Will Sabre capitalize? We have to wait and see. Part of this idea is attached to the exit of the CFO.
- Toxic culture. Sabre is moving from RIF to RIF. Employees are somewhat demoralized. Bain Consulting may have been hired for more cost structure fixes.
- Leadership. Is this the right CEO? Retiring the CFO is bold. We love it. And it comes after a series of strong moves among executives since SM joined the company. Bringing in Bain? Less so. The company needs leadership and needs to deliver.
- Technology. Sabre is embarking on a long term project to move off of mainframes. It will be expensive. Is it necessary?
Net, the bear case items are more or less known and unchanged long term concerns. The 2018 opportunities looked too good to pass up.
We see risk/reward in the $18-28 zone using our new 2018 (unlevered) FCF at the same multiple we have always used (15-20x).
More to follow.
