Amadeus - Banco BPI

Premium class, premium valuation(YE15 Price Target increased from € 34.00 to € 35.80; Recommendation

downgraded from Buy to Neutral)

4 Upside more contained, downgrading to Neutral: Amadeus has been outperforming

its peers, trading now close to historical highs at 11.0x EV/EBITDA and 18.4x

P/E 2015F, at a 19% premium to the sector and 23% to its historical average.

Amadeus' superior MLT growth profile (supported by its incursion into New

Business Units), higher ROIC and healthier B/S justify to a certain extent such

a premium. However, in view of the current limited upside to our YE15 Price

Target of € 35.80 and absence of clear short term catalysts, we downgrade our

recommendation from Buy to Neutral.

4 ML term drivers - more favorable in ITS than GDS: the ITS division should remain

supported by migrations to Altea and new contracts. Prospects for NBUs (Airport,

Rail or Hotel IT) are also positive although visibility on demand and Amadeus'

ability to successfully replicate its expertise into the new businesses are still

limited at this stage. A structural increase in global travelling should continue

to benefit the GDS division but competition and disintermediation are underlying

threats. A sensitivity analysis to long term growth and margin assumptions

reinforces a neutral stance on the stock at these levels.

4 Risks to our recommendation: the drop in oil prices is a tailwind for consumer

spending and global traffic growth as well as a source of upside for Europe's

dismal economic outlook. Still, competition in GDS is a headwind and a potential

source of revenues/margins pressure. On the other hand, Amadeus' strong CF

generation and solid B/S situation (1.0x Net Debt/EBITDA 2014F) could drive an

enhanced shareholder remuneration, either through higher pay-outs or further

share buy-backs. Nevertheless, an overhang risk persists over c.3% of capital from

Air France and Lufthansa Pension Trust, which have been reducing their stakes.

Stock data

Price (5th Jan.): 32.36 Price Target (YE15): 35.80

# shares (mn): 448 M. Cap (€ mn)/F. Float: 14 482 / 78%

Reuters/Bloomberg: AMA.MC/AMS SM Avg. Daily Vol. [€'000]: 101 543

Major Shareholders: Blackrock (5.2%); MFS (5.0%); Government of Singapore (4.9%);

Air France-KLM (2.2%); Fidelity (2.0%); Invesco (1.3%); Lufthansa Pension (1.0%)

Estimates 2011 2012 2013 2014F 2015F 2016F 2017F

PE Adj. 29.7 25.2 23.4 21.5 18.4 16.3 14.6

Dividend yield 0.9% 1.1% 1.6% 1.9% 2.2% 2.5% 2.9%

FCFE Yield 5.6% 3.6% 3.4% 1.7% 3.9% 4.3% 5.4%

FCFF Yield 4.4% 4.0% 3.9% 2.1% 4.3% 4.6% 5.6%

PBV 11.4 9.4 7.8 6.7 6.2 5.2 4.3

EV/EBITDA (1) 14.9 14.0 13.0 11.9 11.0 10.2 9.2

EV/Sales (1) 5.8 5.5 5.2 4.7 4.4 4.1 3.8

Historical Recommendation

Date Recommendation

01-Jul-13 Neutral

09-Sep-14 Buy

Source: BPI Equity Research.

EQUITY RESEARCH

AmadeusTravel & Leisure

NeutralMedium-Risk

8th January 2015

Spain

Amadeus vs. IBEX35 vs DJ

Stoxx 600

Source: Bloomberg.

BPI

Available on our website:

www.bpiequity.bpi.pt, BPI Online,

and Bloomberg at NH BPD

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Analysts

Guilherme Macedo Sampaio, CFA

[email protected]

Phone 351 22 607 3179

Manuel Coelho

[email protected]

Phone 351 22 607 3143

148989

Link

https://www.bpiequity.bpi.pt/others/fileHistoricRec.aspx?emp=00667715

2

Equity Research 4 Amadeus 4 January 2015

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BPI vs. Consensus

Company: Amadeus

Sector: DJ Stoxx Tr&Ls € Pr

Valuation monitor

Relative Valuation 2014 2015 2016

EV/EBITDA

BPI 11.9 11.0 10.2

Consensus 12.3 11.4 10.7

Sector 7.5 6.8 6.4

P/E

BPI 21.5 18.4 16.3

Consensus 21.7 20.1 18.5

Sector 16.1 13.7 12.0

PBV

BPI 6.7 6.2 5.2

Consensus 6.6 5.8 5.0

Sector 3.2 2.8 2.3

Dividend yield

BPI 1.9% 2.2% 2.5%

Consensus 2.1% 2.3% 2.6%

Sector 2.6% 2.6% 3.3%

P&L and B/S monitor

BPI estimates/Consensus 2014 2015 2016

Revenues 1% 2% 2%

EBITDA 0% 0% 2%

EBIT 1% 1% 1%

Net Profit 1% 8% 12%

Net Debt -5% 15% 22%

Capex 83% 15% 17%

Profitability monitor

EBITDA Margin

BPI 38.2% 38.3% 38.8%

Consensus 38.5% 38.9% 38.7%

EBIT margin

BPI 29.1% 28.9% 29.0%

Consensus 28.8% 29.1% 29.1%

Net Profit margin

BPI 19.8% 21.0% 22.1%

Consensus 19.7% 19.9% 20.3%

Key leverage ratios

Net Debt/EV

BPI 0.1 0.1 0.1


Net Debt/EBITDA

BPI 1.0 0.9 0.7


Stock Momentum

Price Performance Forward P/E and EV/EBITDA

Market Price Rating (€) Market Recommendations

Fair Value Comparison (€) CAGR 2013-15

EBITDA Consensus (€mn) EPS Consensus (€)

Source: Factset, Bloomberg and BPI Equity Research.

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Amadeus at a Glance

FY14F Revenues Breakdown (€ 3.4bn) GDS Market Share Evolution

Source: Amadeus.

FY14F Revenues breakdown (€ 3.4bn) FY14F Cash costs breakdown FY14F EBITDA Breakdown (€ 1.3bn)

Source: Amadeus, BPI Equity Research. (1) Incentives and distribution fees,

data communication expenses.

Air traffic and GDS bookings - Evolution Amadeus presence in different world regions (1) (2)

Source: Amadeus, IATA. Source: Amadeus, BPI Equity Research. (1) Growth figures for

8M14. (2) GDS market share vs. revenues weight vs. market growth.

Debt Maturities (€ mn) Capex evolution (€mn) vs. Capex/Sales

Source: Amadeus, BPI Equity Research. Source: Amadeus, BPI Equity Research. (1) ex- PPA Amortization.

4


UPSIDE MORE CONTAINED, DOWNGRADING TO NEUTRAL

Back to historical highs

Amadeus is up 14% since last September and trades close to historical highs at

11.0x EV/EBITDA and 18.4x P/E 2015F. This represents a 23% premium to its

historical average and a 24% and 13% premium to Travelport/Sabre and the average

of the Transaction, OTA and IT industries (proxy-peers), respectively. A premium to

historical levels can be justified by Amadeus' incursion into New Business Units

(which should boost medium-long term earnings), while higher multiples vs. peers

may be explained to a certain extent by Amadeus' higher ROIC, superior growth

profile and healthier B/S. However, the upside to our YE15 Price Target of € 35.80

(+5% revision namely on a lower tax rate in Spain) is now more limited. With the

stock trading at a modest 3.8% FCFE and in the absence of clear short term

catalysts, we downgrade our recommendation from Buy to Neutral.

Sum of Parts (€ mn) DCF Assumptions

Business EV Attrib. % EV

Distribution 6 858 41% Re 10.5%

IT Solutions 10 055 59% Rf 3.3%

Enterprise Value 16 913 Avg. CRP 0.1%

YE15 Net Debt 1 328 Beta Equity 1.2

Provisions & Other Liabilities 91 Mkt Premium 6.0%

Financial Investments 45 Rd 3.6%

Minorities 21 Tax Rate 25%

Equity Value 15 517 D/EV 30%

# Shares (mn) 434.6 WACC 8.2%

YE15 Fair Value (€) 35.80 g (Distribution) 1.5%

g (ITS) 3.0%


AMS P/E FW12M AMS P/E disc./premium to proxy-peers

Source: Factset.

Sensitivity analysis on medium term drivers

The IT Solutions division (59% of our target EV) should remain supported by

migrations to Altea and new contracts with the North American market looking like

an interesting medium-long term target (with US airlines increasingly searching for

more sophisticated IT systems). We note that a potential new deal with a major

airline (like Delta or United Continental) could bring c.150m further Passenger

Price Performance

1M 3M 12M

Amadeus 1% 14% 8%

Travelport 4% 8% n.a.

Sabre 5% 10% n.a.

Ibex 35 -8% -5% 2%

DJ Stoxx T&L -1% 12% 16%

Source: Bloomberg.

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Market Multiples

EV/EBITDA P/E

15F 16F 15F 16F

Amadeus 11.0 10.2 18.4 16.3

Sabre 8.3 7.1 17.4 13.8

Travelport 7.6 6.9 16.0 12.7

Median GDS 8.0 7.0 16.7 13.2

Thomson Reuters 10.5 9.9 18.0 15.9

Experian 10.8 9.9 16.5 15.3

Visa 15.8 13.8 24.3 20.9

Mastercard 14.2 12.2 23.0 19.3

Western Union 7.3 6.8 10.6 10.1

ADP 9.5 9.6 14.7 13.6

Median Trans. 10.6 9.9 17.3 15.6

Priceline 12.0 9.4 17.0 14.4

Expedia 8.5 6.7 18.4 15.8

Orbitz 5.7 4.1 19.8 16.7

Median OTAs 8.5 6.7 18.4 15.8

SAP 10.0 8.6 14.8 13.7

Sage 12.1 11.3 17.3 16.0

Dassault Syst. 13.2 11.7 23.7 21.3

Software AG 7.0 6.2 10.7 10.3

AVEVA Group plc 9.3 7.9 16.0 14.8

Atos Origin 4.0 3.4 11.5 10.3

Tieto 6.7 6.3 12.5 11.9

Median IT 9.3 7.9 14.8 13.7

Source: BPI Equity Research

(Amadeus) and FactSet.

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5


Boards (15% of Amadeus 2017 target) and 5% additional upside to our Price Target.

However, there is also a risk of Alitalia's exit from Altea following its recent link with

Etihad. This could have a 1% negative impact in our valuation. In a blue-sky scenario

where every airline currently in Altea contracts all of Amadeus' existing modules, our

Price Target would rise by over 10%. Medium-long term prospects for NBUs (such as

Airport, Rail or Hotel IT) are also positive. A sole agreement with a top tier chain could

account for the total signings we are currently forecasting until 2022. The risks here

are the still limited visibility on demand, competition and Amadeus' ability to

successfully replicate its ITS expertise onto the new businesses.

The Global Distribution Sytems division (41% of our target EV) should continue to

benefit from a structural increase in global travel and traffic growth as well as from

Amadeus' diversified geographic-mix and technological advantages. However,

competition and disintermediation are underlying threats. In this context, IATA's

New Distribution Capability (NDC) project stands as a potential menace. Still, we tend to

see this eventually as an opportunity for the incumbent GDS, considering their likely

role as content aggregators within a higher value-added chain. It is true that one

cannot rule out some volumes pressure arising from the appearance of direct connection

initiatives but on the other hand at least part of that potential revenue erosion could

be recovered in the ITS business (considering the need for the system implementation

and Amadeus' good position as ITS provider). In a worst case scenario, we estimate

that a loss of 10% in Amadeus' air bookings from 2017 onwards could have a 7%

negative impact in our valuation. This does not account however for the potential

upside in ITS which is more difficult to quantify and highly dependent on the

implementation costs and pricing of an XML connectivity.

Sensitivity analysis on long term growth and margins

Our YE15 Price Target is based on a weighted average long term growth of 2.4%

and a long term EBITDA margin of 41.4% (vs. 38.2% in 2014F and a 2007-13

historical average of 37.2% ex-Opodo). Main risks to these figures are competition,

particularly in GDS and NBU. Assuming a 1pp change in long term growth and

EBITDA margin assumptions, our PT would vary by c.+€ 3.0 (+8%), implying an

upside range from 3% to 21%.

EV/EBITDA vs. ROIC 2015F



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YE15 PT Sens. Analysis (€/sh)

Traffic growth

LT EBITDA mg 4.0% 5.0% 6.0%

40.4% 32.90 34.70 36.60

41.4% 33.90 35.80 37.70

42.4% 34.90 36.80 38.80

Potential upside

Traffic growth

LT EBITDA mg 4.0% 5.0% 6.0%

40.4% 4% 10% 16%

41.4% 7% 13% 19%

42.4% 11% 16% 23%


YE15 PT Sens. Analysis (€/sh)

g

WACC 1.9% 2.4% 2.9%

7.7% 38.00 39.40 41.20

8.2% 34.60 35.80 37.10

8.7% 31.80 32.70 33.70

Potential upside

g

WACC 1.9% 2.4% 2.9%

7.7% 20% 25% 30%

8.2% 10% 13% 17%

8.7% 1% 4% 7%


6


BUSINESS OUTLOOK & EARNINGS UPDATE - IT SOLUTIONSTHE MAJOR GROWTH DRIVER

The IT Solutions division should be the key growth driver for Amadeus, at first

through Altea and subsequently through NBUs. We expect it to increase from 38%

of consolidated Contribution (Revenues-Direct Costs) in 2014F to 46% by 2017F.

On the other hand, GDS should continue to lag in growth terms, impacted by a

structural disintermediation trend and competitive pressures across the industry.

Contribution and EBITDA Growth

CAGR

2013 2014F 2015F 2016F 2017F 2013-17F

Contribution 1 587 1 732 1 864 2 001 2 184 8.3%

GDS 1 036 1 067 1 111 1 139 1 170 3.1%

ITS (ex-NBUs) 551 625 705 804 903 13.2%

NBUs (inc. Newmarket) 0 41 48 57 112 n.s.

Indirect costs 398 432 454 477 501 5.9%

EBITDA 1 189 1 300 1 410 1 524 1 684 9.1%

Source: Amadeus, BPI Equity Research.

13% Contribution CAGR 2013-17F at ITS ex-NBUs

This should be supported by: 1) the already signed airline migrations with Korean

Air, Thomas Cook, Southwest's domestic business, Swiss International and Japan

Airlines, comprising on the whole, a 9% CAGR 13-17F; 2) an expected traffic

growth of 6% in that period; and 3) a flat average Revenue/Passenger Boarded

evolution as the upselling of new Altea modules should be offset by the pricing

dilution arising from the Southwest Domestic migration.

Positive outlook for Passenger Boardings

Amadeus should be able to reach its target of c.1bn PBs by 2017, implying a

CAGR of 15% in 2013-17F, supported by a favorable business environment. We

identify incremental opportunities as airlines are increasingly willing to outsource

their outdated legacy systems (mostly from the 1960s/1970s), which often cannot

efficiently address the current activity needs. On the other hand, airline contracts

representing more than 1bn PBs should come up for renewal over the next three

years (only a small part from Amadeus), which may be an opportunity for market

share gains, especially in the Middle East and Asia-Pacific. We also see interesting

MLT opportunities in the US market. On this front, after setting a first foothold in

North America with the agreement with Southwest in 1H14, Amadeus should be

seeking to further develop its presence in that market, which remains relatively

limited when compared to its main peer Sabre. Delta Airlines seems to be a potential

target for Amadeus' Altea system after having recently reacquired part of its PSS

from Travelport (which kept the systems infrastructures and hosting). Also, we do

not discard a decision from United Continental of at some point replacing its

current IT provider, which would be an additional opportunity for Amadeus.

Additionally, the global airline industry should continue with its consolidation process

in order to improve efficiency levels, which should act as a catalyst for IT overhauls

and potential new contracts for ITS providers. Still, sector consolidation also induces

churn risks as it may happen with the exit of Alitalia from Altea, following the

acquisition of a 49% stake in the Italian airline by Etihad.

FY14F Revenues breakdown

per business unit

Source: Amadeus.

Contribution Breakdown


FY14F Cash costs breakdown

(1) Incentives and distribution fees, data

communication expenses.

Source: Amadeus.

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Moreover, while likely value accretive, an incursion into North America could entail

some dilution in fees per PB given the more consolidated nature of the market and

the greater bargaining power of airlines. Still, we believe that Amadeus should try

to at least partially offset this effect through the upselling of the new Altea modules

it has been developing (such as Departure Control Systems, Revenue Management,

Revenue Accounting and Loyalty Management). Although DCS upselling should

not be a major earnings driver as most of the clients have already contracted this

module, we envisage good prospects for the remaining areas, considering the

relatively low client base. Still, inroads on these markets may appear more

challenging, considering the higher competition levels. In any case, the sign-up by

all current clients for all of Amadeus' 6 modules could mean an upside of more

than 20% in the current average fee/PB, according to our estimates. Also, we

should continue to see interesting cross-selling opportunities for e-Commerce and

Standalone Solutions as airlines strive to improve the way customers are addressed

(digital channels, ancillary revenues, etc).

Still incipient but fast growth expected for NBUs

The earnings contribution of the NBUs should remain limited in the short term

(2% of consolidated Contribution in 2014F, mostly explained by Newmarket) but

we expect it to increase over time (16% of Contribution by 2022F) and become a

major earnings growth factor in the medium-long term with its Contribution

increasing from € 41m to € 480m between 2014F and 2022F (40% CAGR). This

should be driven by the gradual incorporation of the new products into Amadeus'

portfolio as they reach the marketability phase, and new contract signings.

Further visibility on NBUs outlook

2014 has been an active year in terms of contract signings, with launching

partners found for most of the areas where the company is aiming to increase

its presence. On Hotel IT, an agreement was signed with the Intercontinental

Hotel Group encompassing the implementation of several modules that Amadeus

is developing for the industry. With the progress achieved to date, the company

is now looking for an additional partner to test other products that it plans to

include in its Hotel Solutions. The acquisition of Newmarket in late 2013 should

accelerate earnings delivery by improving the access to top hotel chains

(Newmarket's client base and Amadeus target market) and boosting cross-selling

synergies.

Still, we only expect the Hotel IT product (ex-Newmarket) to be marketable by

2017. We forecast Hotel IT revenues to reach € 385m, or € 537m including

Newmarket, by 2022 (c18% market share) assuming that Amadeus manages to:

1) charge c. € 0.60/room for its IT transactional services (considering the € 3bn

target market Amadeus predicts by 2022 and the c.14m hotel rooms worldwide);

2) sign the equivalent of one mid to large size hotel chain, (with 150k rooms)

per year from 2018 (vs. the current c.700 of IHG); and 3) grow its room portfolio

by a conservative underlying 2% CAGR 2013-22F, in line with the market.

On Airport IT, Amadeus is working with the Copenhagen and Munich airports on

the development of the fixed resource optimizer (targeting a more efficient slot

allocation) and sequence planner, respectively. Also, it has recently signed an

agreement with London Gatwick Airport to implement a cloud-based Airport-

Collaborative Decision Making Portal, capable of providing aggregated views of

the status of the airport's operational activities based on real-time flight,

8


passenger and other operational data. On this area, Amadeus seems to have a

product at a clearly more advanced stage, with some revenues contribution

already expected for 2016 and probable new contract signings over the next

12-months. On the other hand, we believe that Amadeus has several advantages

vs. its main competitors (SITA, ARINC, Ultra Electronics), namely its Altea DCS

presence in several airports (643, with a 50% market share in more than 200)

and its product specifications (integrated, transaction based pricing model).

Also, the acquisition of UFIS has brought a very good customer base, adding

complementary modules to Amadeus solutions in several areas (airport operational

database, resource management systems, flight information display systems

and collaborative decision making). We forecast Airport IT revenues to reach € 623m

by 2022 (20% market share), supported by: 1) agreements with the equivalent

of 20 mid-size airports (with 35m passengers/year); 2) the charge of a € 0.54

average fee/PB (considering the € 1.6bn target market on Amadeus figures

and c.3bn passengers worldwide); and 3) an underlying passenger CAGR 2013-

22F of 5%, in line with the IATA expectations.

On the remaining areas, there has already been some progress in: 1) Rail IT

through a contract with BeNe Rail International for the product development,

although the advances here should be relatively slow (marketability expected

only for 2020); and 2) Payments with agreements with Wirecard, Alipay, UnionPay

and Worldpay (even if the earnings contribution should remain relatively limited

in the short term). Travel Intelligence is a promising area, considering Amadeus'

extensive travel knowledge and access to industry data but visibility on its

earnings potential remains low at this stage.

3% Contribution CAGR 2013-17F at GDS

The Global Distribution Systems division should post a slower growth impacted by

less favorable trading conditions.

Market share gains helping to cope with disintermediation headwinds…

The expected traffic growth (c.5%/year in the medium-long term, in line with

IATA's projections) should be partly curbed by a structural disintermediation

tendency across the sector (c.2pp/year). This trend however has been showing

some signs of stabilization with some Low-Cost Carriers (LCCs) increasingly shifting

bookings to indirect channels in the search for higher yields. The recent agreement

between Ryanair and Amadeus and Travelport is a good example of this. In any

case, we believe that Amadeus should continue to cope relatively well with this

disintermediation headwind helped by market share gains, which should remain

supported by: 1) the migration of Topas and Orbitz (2014-2016); 2) a favorable

geographic-mix biased towards higher growth regions (with relatively lower exposure

to North America); and 3) superior technology vs. some of the competitors.

… but competition pressuring margins

A tough competition environment should drive costs higher through the increase

in unit incentives, with a negative impact on margins. Still, the situation may not

be sustainable and could normalize at some point in time, considering the relatively

worse financial situation of Amadeus' main GDS competitors (Sabre and Travelport

with 3.4x and 4.0x ND/EBITDA 14F respectively, vs. Amadeus 1.0x). On the other

hand, the growing weight of local bookings driven by the incursions of Amadeus

into the US and Korean markets as well as the increasing participation of LCCs in

9


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GDS should lead to some dilution in average revenues per booking. This effect

could be mitigated in the medium-long term by the positive effect arising from an

increased weight of higher value-added global bookings, where Amadeus charges

higher fees.

GDS market shares (1) GDS market share evolution

(1) Sabre’s bookings including Abacus and Infini (JVs in Asia). Source: Amadeus, BPI Equity

Source: Sabre. Research.

Downside and upside risks

Amadeus' geographic diversification and long term nature of its contracts (5-10

years) provide a recurrent revenue stream and make it as a relatively defensive

player in the travel & leisure sector. Still, its activity is not immune to the macro

environment. Over the last 40 years, global air traffic has evolved at a multiplier of

1.3-1.6x to GDP so the weak economic outlook for Europe is currently a headwind.

On the other hand, the drop in oil prices could act as a tailwind: although not

directly impacting Amadeus (not an input cost), it benefits the airlines sector

(which may lower fares and raise passenger volumes) and eventually lifts the

available income of customers to travel.

IATA's NDC a menace or opportunity?

IATA's New Distribution Capability (NDC) project was originally conceived as a way

to increase the knowledge on the traveler (concept of "who is asking") and improve

customization in the indirect distribution channel. This would answer to the airlines'

aim of raising yields through ancillary sales, something possible in their own websites

but more difficult through travel agencies. Airlines should therefore be the main

beneficiaries of the NDC implementation but travel agencies should also profit

from the access to a more detailed, real-time content. Although this is something

that is already possible through the current GDS operating technology (based on

EDIFACT language), NDC is supporting the convergence into XML standards, which

are significantly more flexible. Still, this switching process involves a significant

investment by travel operators, which represents a major obstacle for the NDC

development. Nevertheless, the project seems increasingly a reality and the final

product is now expected to be ready by 2017.

Resilience to the economic cycle

Source: Amadeus.

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EDIFACT (GDS) vs. ...

... XML Interface (NDC)

NDC implementation timeline

Source: IATA.

Source: IATA.

The GDS role post-NDC has been a matter of extensive discussion. A wide

implementation of the XML framework (simpler and more flexible than EDIFACT)

would decrease the technological entry barriers in this business segment (commercial

barriers would still be difficult to overcome though) and possibly support a new

wave of direct connections (bypassing GDS) which could be a source of volumes

pressure. Still, this NDC implementation would imply significant IT investments by

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Amadeus Geographical

Revenues Breakdown

Source: Amadeus.

11


airlines/travel agencies in order to fund the multiplicity of direct links that would

be needed to connect each airline with each travel agency. The use of an industry

content aggregator might partially solve this problem. In this sense, the reliance on

incumbent GDS to carry out this revamping in the distribution process seems progressively

more likely and these have already assumed their availability to cooperate with IATA

on the NDC project (even if sharing the investment costs with other industry players).

GDS operators acting as aggregators would also ensure that incentive fees (often a

relevant part of travel agencies' revenues) are not lost. On the GDS side, the NDC

implementation could also be an opportunity in the way that the resulting enhanced

airline product could push the overall booking value and hence the distribution fee charged.

Additionally, the airlines' need to upgrade their IT systems to support the XML

connectivity could bring incremental business for IT companies, with Amadeus standing

in a good position to seize this, considering its good track record in IT systems

implementation and know-how in the airline industry.

Downside risks for GDS?

Aside from some possible volume losses driven by the emergence of specific direct

connection initiatives, we see the NDC project as an opportunity for the GDS

market. Still, the appearance of a new entrant content aggregator capable of

financially supporting the creation of a XML platform is a significant risk.

Nevertheless, any investor would seek a decent return on its capital with travel

industry participants eventually being charged. Ultimately, this would only be a

valid alternative if the offered value proposition is better than that delivered by the

GDS, something which would be difficult to materialize at least in the near term.

Overall, we believe that an opportunity for the IT Solutions business should remain

in place.

Flight Distribution Today New Distribution Capability

Source: IATA.

12


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Strong cash flow generation

We have incorporated the new Altea contracts (with Thomas Cook, Vistara and

South African Airways) and GDS agreements (namely with Ryanair), and fine-tuned

our traffic growth estimates, factoring-in a weaker outlook for Europe. Additionally,

we have adjusted GDS pricing, reflecting a stronger USD. Overall, we have kept

our consolidated estimates roughly unchanged, leading to an expected CAGR 2013-

17F of 8% at revenues and 9% at EBITDA (13% at net profit).

We remain roughly in line with consensus at the operating level although somewhat

above at net profit due to the incorporation of the new Spanish tax regulation

(25% vs. 30% rate from 2016 onwards). We have also cut our Capex projection for

2014 (by 9%, now standing close to the company's low end guidance of 12-15%

of revenues) and incorporated the recently announced share buy-back plan (of up

to € 320m/2.79% of capital until next May). Overall, cash flow generation should

remain strong with Amadeus expected to improve its Net Debt/EBITDA from 1.0x in

2014F to 0.4x by 2017F. This could support an enhanced shareholder remuneration

going forward either through higher dividend pay-outs (currently at 50%) or further

share buy-backs.

BPI vs. Consensus

2014F 2015F 2016F

BPI Cons. Dev. BPI Cons. Dev. BPI Con. Dev.

Revenues 3 400 3 383 1% 3 676 3 616 2% 3 925 3 857 2%

EBITDA 1 300 1 301 0% 1 410 1 405 0% 1 524 1 492 2%

margin 38.2% 38.5% 38.3% 38.9% 38.8% 38.7%

Net Profit 673 667 1% 771 715 8% 868 775 12%

Source: Bloomberg, BPI Equity Research.

Shareholding structure: do recent placements portray a negative signal?

A total of 5.4% of Amadeus' shares has recently been sold in the market at an

average price of € 29.41 (9% below the current price level) with the Lufthansa

Pension Trust selling 3.0% and Air France 2.4%. The reasons behind these disposals

could be other than valuation - particularly in the case of Air France which faces a

challenging financial situation - but overall the signaling provided to the market is

on the negative side, in our view. An overhang risk remains in place as the Lufthansa

Pension Trust and Air France remain with 1.0% and 2.2% of Amadeus, respectively.

EBITDA consensus (€ mn)

Source: FactSet.

Shareholding Structure

Source:CNMV.

Leverage evolution


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P&LCAGR

(€ mn) 2011 2012 2013 2014F 2015F 2016F 2017F 13-17F

Revenues 2759 2910 3104 3400 3676 3925 4291 8%

EBITDA 1073 1105 1194 1305 1416 1531 1691 9%

EBITDA adj. 1039 1109 1189 1300 1410 1524 1684 9%

EBITDA adj. mg. 37.7% 38.1% 38.3% 38.2% 38.3% 38.8% 39.2%

Depreciation & others -242 -273 -306 -316 -354 -394 -433 9%

EBIT 831 831 888 989 1062 1137 1258 9%

EBIT adj. 800 840 888 989 1062 1137 1258 9%

Net financial results -170 -89 -66 -65 -58 -46 -35 -15%

Income tax -213 -229 -266 -297 -281 -273 -306 4%

Others 282 -17 7 0 0 0 0 n.s.

Minority Interests -1 1 0 0 0 0 0 n.s

Net Profit reported 729 497 563 628 722 818 917 13%

Net Profit adj. 487 575 620 673 771 868 968 12%

Balance SheetCAGR

(€ mn) 2011 2012 2013 2014F 2015F 2016F 2017F 13-17F

Net Intangibles 3849 3944 4052 4561 4789 5017 5176 6%

Net Fixed Assets 282 299 305 269 239 206 171 -13%

Net Financials 28 30 27 27 27 27 27 0%

Inventories 0 0 0 0 0 0 0 n.s

ST Receivables 279 241 282 318 353 368 405 9%

Other Assets 48 61 63 63 63 63 63 0%

Cash & Equivalents 393 400 491 589 279 139 317 -10%

Total Assets 5044 5155 5427 6055 5996 6082 6447 4%

Equity & Minorities 1266 1531 1840 2152 2277 2734 3243 15%

MLT Liabilities 2720 2368 2348 2563 2275 1935 1686 -8%

o.w. Debt 2015 1541 1427 1601 1307 1000 800 -13%

ST Liabilities 804 984 970 1049 1132 1083 1160 5%

o.w. Debt 244 361 285 285 300 200 200 -8%

o.w. Payables 482 512 552 618 674 714 776 9%

Equity+Min. + Liab. 5044 5155 5427 6055 5996 6082 6447 4%

Cash Flow Statement

(€ mn) 2011 2012 2013 2014F 2015F 2016F 2017F

+ EBITDA 1070 1100 1189 1300 1410 1524 1684

- Chg in Net W.C. -20 -100 -30 -29 -35 -38 -43

- Taxes Paid 123 194 231 239 276 305 355

Operating Cash Flow 967 1006 988 1090 1169 1257 1372

- Growth Capex 75 66 78 416 147 157 129

- Replacement Capex 303 320 341 374 404 432 429

- Net Fin. Inv. -56 43 -2 0 0 0 0

Cash Flow after Inv. 644 577 570 300 617 668 815

- Net Fin. Exp. 170 89 66 65 58 46 35

- Dividends Paid 134 165 226 280 314 361 409

+/- Equity 8 5 9 -37 -283 0 0

Other 339 35 -7 6 6 7 8

Change in Net Debt -687 -363 -280 75 32 -267 -378

Net Debt (+)/Net Cash (-) 1865 1502 1221 1297 1328 1061 683

Growth, per share data and ratios2011 2012 2013 2014F 2015F 2016F 2017F

Sales growth 6% 5% 7% 10% 8% 7% 9%

EBITDA Adj. growth 6% 7% 7% 9% 8% 8% 10%

EPS Adj. growth 21% 18% 8% 9% 17% 13% 11%

Avg. # sh (mn) 448 448 448 448 443 438 438

Basic EPS 1.63 1.11 1.26 1.40 1.65 1.87 2.10

EPS Adj. Fully diluted 1.09 1.28 1.38 1.50 1.76 1.98 2.21

DPS 0.30 0.37 0.50 0.63 0.70 0.82 0.93

Payout 98.2% 22.6% 45.4% 49.7% 50.0% 50.0% 50.0%

ROCE (after tax) 19.3% 20.2% 21.9% 22.8% 22.6% 23.1% 24.4%

ROE 72.1% 35.6% 33.4% 31.5% 32.7% 32.7% 30.7%

Gearing (ND/EV) 11.9% 9.6% 7.8% 8.3% 8.5% 6.8% 4.3%

Net Debt/EBITDA 1.7 1.4 1.0 1.0 0.9 0.7 0.4

Source: Company data and BPI Equity Research (F)

Sum of Parts (€ mn)

Business EV Attrib. % EV

Distribution 6 858 41%

IT Solutions 10 055 59%

Enterprise Value 16 913

YE15 Net Debt 1 328

Provisions & Other Liabilities 91

Financial Investments 45

Minorities 21

Equity Value 15 517

# Shares (mn) 434.6

YE15 Fair Value (€) 35.80


Sensitivity Analysis (€/Share)

-0.5pp D g +0.5pp

-0.5pp 38.00 39.40 41.20

D WACC 34.60 35.80 37.10

+0.5pp 31.80 32.70 33.70


Market Multiples

EV/EBITDA P/E

15F 16F 15F 16F

Amadeus 11.0 10.2 18.4 16.3

Sabre 8.3 7.1 17.4 13.8

Travelport 7.6 6.9 16.0 12.7

Median GDS 8.0 7.0 16.7 13.2

Thomson Reuters 10.5 9.9 18.0 15.9

Experian 10.8 9.9 16.5 15.3

Visa 15.8 13.8 24.3 20.9

Mastercard 14.2 12.2 23.0 19.3

Western Union 7.3 6.8 10.6 10.1

ADP 9.5 9.6 14.7 13.6

Median Trans. 10.6 9.9 17.3 15.6

Priceline 12.0 9.4 17.0 14.4

Expedia 8.5 6.7 18.4 15.8

Orbitz 5.7 4.1 19.8 16.7

Median OTAs 8.5 6.7 18.4 15.8

SAP 10.0 8.6 14.8 13.7

Sage 12.1 11.3 17.3 16.0

Dassault Syst. 13.2 11.7 23.7 21.3

Software AG 7.0 6.2 10.7 10.3

AVEVA Group plc 9.3 7.9 16.0 14.8

Atos Origin 4.0 3.4 11.5 10.3

Tieto 6.7 6.3 12.5 11.9

Median IT 9.3 7.9 14.8 13.7



BPI

INVESTMENT RATINGS STATISTICS

As of 31st December BPI Equity Research's investment ratings weredistributed as follows:CoRe Buy 9%Buy 26%Neutral 43%Reduce 11%Sell/Accept Bid 5%Under Revision/Restricted 5%Total 100%

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Swap Transaction), to cover the inherent risk in the acquisition of 6.64% of Sonae's share capital, at a price of €2.06 per share. In this contract, the

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the inherent risk in respect of 6.13% of Sonae's share capital) was extended up to 12 Months, until November 2014. In November 2014, the maximum

maturity of this "Equity Swap" (covering at such date the inherent risk in respect of 6.10% of Sonae's share capital) was extended up to 12 Months,

until November 2015.

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INVESTMENT RATINGS AND RISK CLASSIFICATION (TOTAL RETURN IN 12-18 MONTHS):

Low Risk Medium Risk High RiskBuy/CoRe Buy >15% >20% >30%Neutral >5% and < 15% >10% and <20% >15% and < 30%Reduce >-10% and < 5% >-10% and < 10% >-10% and < 15%Sell < -10% < -10% < -10%These investment ratings are not strict and should be taken as a general rule.

BANCO PORTUGUÊS DE INVESTIMENTO, S.A.

Oporto Office Madrid Office Paris Office Cape Town Office

Rua Tenente Valadim, 284 Pº de la Castellana, 40-bis-3ª 31, Avenue de L'Opéra 20th Floor, Metropolitan Life Centre,

4100-476 Porto 28046 Madrid 75001 Paris 7 Walter Sisulu Avenue, Foreshore,

Cape Town, 8001 - South Africa

Phone: (351) 22 607 3100 Phone: (34) 91 328 9800 Phone: (33) 1 4450 3325 Phone: (27) 21 410 9000

Telefax: (351) 22 606 4183 Telefax: (34) 91 328 9870

Documents

Amadeus - Banco BPI