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Did The Market Overreact On Aimia Inc (OTCMKTS:GAPFF)?

Did The Market Overreact On Aimia Inc (OTCMKTS:GAPFF)?
Written by
Jarrod Wesson
Published on
February 13, 2018
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What happened to AIMIA INC (OTCMKTS:GAPFF)? In February, the share price declined by 33%. The reason was the sale of its Nectar Loyalty Program to J Sainsbury plc. The company received $105 million. However, it had to give several concessions, which were not appreciated.In this article, we will review the selling conditions. Other reports of this name did not include them. Thus, readers will be interested.Before, check the recent price action. Take into account the announcement date; February 1, 2017: YTD chart for GAPFFWhat's the business model?AIMIA is a data-driven marketing analytics company. It provides customer insights to the clients. The following video is very illustrative. The business model is well explained. Have a look:

What are the conditions?The following will be sold:

  • Nectar Loyalty Program trademarks included.
  • AIMIA’s Intelligent Shopper Solutions U.K.
  • Intelligent Research businesses
  • 50% equity stake in the i2c joint venture with Sainsbury’s

Apparently, we have insufficient access to the accounting books. So, determining whether those assets are worth $105 million is very difficult. We cannot judge it precisely. Other market participants cannot either.However, there are more conditions that will indicate the market reaction. Check this image: Selling Conditions - AIMIA INC OTCMKTS:GAPFFThe buyer will assume the Nectar redemption liability. Thus, in return, GAPFF will transfer $183 million.So, how will GAPFF's cash position be affected?Read the following: Cash and cash equivalents - AIMIA INC OTCMKTS:GAPFFThe company's net cash will be reduced by $174 million. The weighted average number of shares outstanding is 152 million. Thus, the value erosion is approximately $1.14 per share. Voilà! That is roughly the value erosion seen in the stock chart.What's our take?The market has overreacted. It accounted for the cash per share loss but did not consider the debt reduction. The following was also included in the press release: Debt Reduction - AIMIA INC OTCMKTS:GAPFFWhat does it mean?The debt was reduced. So, in our opinion, the financial risk diminished and the market did not recognize it. The market reaction could not be worse. It only discounted the cash given to the seller. Consequently, we could see some upside in the share price after the transaction.The Q4 2017On February 14, 2018, the market will have the Q4 report. Also, there will be a conference call. We will need to be ready. Maybe investors ask questions regarding the "sale." If directors note that the reaction of the market was absurd, the share should run up.That's not all. We need to look at cash generated for the quarter.Longs will be looking at the revenues, and the free cash flow generated. The numbers released may surprise, which would not be new. The revenue growth has been the significant driver of the share price over the last few years. Increase in Revenue - AIMIA INC OTCMKTS:GAPFFQ3 Balance SheetThe financial situation shown seems stable. The total amount of cash is CAD$374 million. The receivables are equal to CAD$248 million. Additionally, the amount of intangibles, CAD$1,088 million, is also very significant. The total amount of assets is equal to CAD$4,260.The amount of liabilities is the following. The most significant is the deferred revenue, CAD$1,695. Additionally, the accounts payable of CAD$276.5 are also remarkable. The total amount of liabilities is equal to CAD$4,280 million.In our opinion, the company should continue selling assets. However, there will not be problems if sellers don't show up. The amount of cash is substantial and sufficient for the moment.Restructuring costsAdditionally, it is important to note the restructuring costs. The company is making a lot of efforts. Check the following table: Restructuring Expenses - AIMIA INC OTCMKTS:GAPFFNot many articles disclosed those numbers. But, they are very significant. Usually, companies restructuring tend to perform in the market. We will see if it is true in this case.ConclusionCurrently trading with a market cap of $362 million, GAPFF is an interesting story among small caps.Finally, the market is discounting incredible revenue growth. We are optimistic as well. The sales increased from $1,673 million in 2013 to $2,288 million in the fiscal year 2016. Additionally, the EV/Sales ratio is 0.17x.To sum up, readers should monitor this name.Be sure to check out our coverage on GAPFF!We will be updating our subscribers as soon as we know more. For the latest updates on GAPFF, sign up below!Disclosure: We have no position in GAPFF and have not been compensated for this article.Image courtesy of mrdonduck via Flickr

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