What a roller coaster journey I have had with Aimia for the past 2 years. I initially bought Aimia share around CAD 1.3 in Sep 2017. There was a lot of debate around what Aeroplan would look like once it breaks away from Air Canada. My purchase was driven mainly by the insight that the redemption liabilities originated from issuing loyalty points do not carry nearly as much economic value as its nominal value would suggest. As the issuer of your own currency, there are multiple ways to deflate the liabilities denominated in your own currency to effectively zero. Anyhow that debate got resolved when Air Canada bought back Aeroplan for a sweet CAD 450m which more than double Aimia’s market capitalisation at the time.
I sold the majority of Aimia position but kept a sizable 5% position because I believe the activists’ chance of monetising the remaining holdings (such as PLM and Cardlytics) are quite high and the discount to NAV is substantial (30-50%).
Fast forward to the current situation, the activists have taken over the board at Aimia and completed monetization of smaller stakes such as Cardlytics. However, the real value is PLM which is Aero Mexico’s loyalty program. Aimia owns 49% of PLM.
The biggest variable in Aimia’s NAV calculation is the valuation of PLM stake. This valuation is a balance of three factors:
- The balance of negotiation power
- How much can Aeromexico realistically afford to pay given its highly leveraged b/s
- The intrinsic value of PLM
I ranked them in order of decreasing importance. The relative negotiation power of Aimia vs Aero Mexico is the most important driver of the actual value realisation and not the intrinsic value of PLM. It is not clear that Aimia is in a position to push for high valuation because Aeromexico can always opt for the status quo indefinitely. Yes, Aeromexico would have to share the dividend value with Aimia but it would also be very hesitant to add to its already high debt load. Of course, Aeromexico can issue equity to Aimia but this is further compounded by the current coronavirus situation.
My original expectation was that there could be a reasonable chance that Aimia can sell PLM stake at 10x EV/EBITDA multiple. I must admit that this is looking increasingly remote. I still believe that Aimia easily have 20-50% upside from its current share price. However, there is a real opportunity cost to holding Aimia shares as other companies are becoming more attractively priced.
So I have decided to sell Aimia position down to zero at the prevailing market price (CAD 2.2)