Accelya looks very interesting at this point. I have been tracking this company for over a decade. The first time I bought Accelya was way back in 2012 and exited completely in 2018. I started buying again in January this year and will continue to add.
Few points on why Accelya should do well:
Valuations are cheap, be it historical or absolute.
Recovery started in late 2021, and numbers have been decent since. My first target was matching 2019 numbers, which was done in this quarter.
A new growth cycle is underway, I expect earnings growth to be around 20%, revenue growth around 15%. There are quite a few reasons for this -
(i) There’s a trend of new carriers emerging all over the world, so a lot of these incremental partnerships are higher margin in nature
(ii) There’s renewed energy in the airlines sector once again, which means there’s focus on getting a better price for their inventory and also reducing costs, meaning outsourcing of non core functions. This helps Accelya cross sell better. Recent examples are Frontier Air adding Accelya’s AirRM 2, and Thai Airways adding outsourced revenue accounting services 1 to their renewals.
(iii) The biggest driver of growth is this new distribution system launched by IATA, that is called NDC & ONE Order. Will expand more on this –
NDC (New Distribution Capability) is a travel industry-supported program (NDC Program) launched by IATA for the development and market adoption of a new, XML-based data transmission standard (NDC Standard). The NDC Standard enhances the capability of communications between airlines and travel agents and is open to any third party, intermediary, IT provider or non-IATA member, to implement and use.
NDC transition is underway, which means this will see more one time project spending on transition, which benefits Accelya and the other existing players. Accelya has already started working on NDC implementation, plus they’re getting more allied work. For example, one of their big customers, American Airlines engaged them on a different project to support sale of unused EDIFACT tickets exchangeable through NDC connections 3. For reference - EDIFACT is the old standard and NDC is the new standard.
Resources to understand NDC and ONE Order –
Interesting times for a monopoly player that has been sleeping for years!
Adding some more insights on the implication of NDC adoption -
NDC decreases the value add of GDS companies like Sabre, Travelport. (How? Single integration with NDC APIs of airlines which gives out all offer and order related details. Infact ability to provide auxiliary offerings like luggage, seat, lounge, tour packages etc. is an add-on under NDC. In the existing pattern, GDS system maintain multiple integration with airlines (and other 3rd parties) to bring all these offerings under 1 roof. NDC will move this value add and move it inside airline servers.
What does it mean for airlines? (a) Relatively lower service fees paid to GDS - Lower fees due to lesser value add compared to existing integration. This incentives airlines to move towards NDC. (This is an educated guess and yet to find a very specific evidence from airlines or GDS companies’ annual reports/concalls. A quick scan to Sabre stock price chart and financials does confirm this theory. Sabre’s latest qrtly revenue is yet to reach 2016’s qtrly runrate). (b) Shifting of traffic to airline websites - As and when airlines rolls out NDC alongwith removing Edifact based content, in the short term, all the OTAs and TMCs who do not have NDC integration with GDS, will not be able to provide NDC based content to customers. In the short term, until NDC integration gets built into OTAs and TMCs, customer traffic will shift to airline websites. This just played out with American Airlines who took a bold step of removing Edifact content, and still able to maintain their revenues.[1][2]
Now what does all of the above mean to companies like Accelya?
As already highlighted by @saurabhved above, airlines sees incentives to move towards NDCs, and Accelya gets one-time opportunity to build it for them.
(Note that there are airlines like Delta who do not have any plans to move to NDC and favor staying with existing integration mainly to avoid any impact to corporate bookings which are through TMCs like cwt, which do not have NDC integrations with GDSes)
On top of air traffic growth, there is an optionality for Accelya as traffic shifts to airline websites Remains to be seen whether the shift is permanent or temporary, which depends on the evolution of seller side (GDS, aggregators, TMCs, OTAs).
I am just starting to study this company, and below is the key unknown I have.
Vista Equity Partners bought this in 2019. This would have perhaps taken care of the growth rate concern, but it followed COVID-19. The whole industry went southward. Things are slowly looking good now but it is unclear why an open offer wouldn’t surface again given that both Accelya Group and Vista are from the US/Europe. In that case, it just becomes a special situation where retail investors just watch from the sides.
If I understand your question correctly, you are afraid that Vista Equity Partners will come out with an offer to sell their stake.
Vista Equity Partners have bought into Accelya under their Perennial strategy. This particular strategy as per their website is focused on providing ‘permanent capital’. They say that under this strategy the investment commitments are for a much longer period than the traditional PE strategy which typically invests for 3-5 years.
If Vista Equity Partners has weathered the storm of COVID-19 with Accelya, I don’t think they will be in a hurry to sell out now that things are finally starting to look good.
Mansimar, there was an open offer triggered in 2020, which I read as Vista’s attempt to take the company private. The company is listed in India, but the promotor is US based. I honestly do not know if there is any downside to keep the company listed in India for them, so had this doubt in my head.
Exceptional items in consolidated financial results for quarter ended March 2024 consist of impairment of Goodwill pertaining to its subsidiary Accelya Solutions UK Limited (Cash Generating Unit - CGU), as a result of reassessment of potential of the business of the CGU, which is not a significant contributor to the earnings of the Company.
The Exceptional items in standalone financial results for quarter ended March 2024 consist of impairment of investment in its subsidiary Accelya Solutions UK Limited, as a result of reassessment of potential of the business of the subsidiary, which is not a significant contributor to the earnings of the Company
