Gentrack buys two airport software makers

Billing and airport software maker Gentrack has announced the acquisition of two small airport software makers, Blip Systems and CA Plus.

The company bought just under 80% of Denmark-based Blip for NZ$8.4m, with the remaining 20% to be bought over the next three years subject to performance. Blip manages passenger flow, capacity forecasting and queue prediction using video cameras and mobile phone detectors to monitor passenger movement – which should enhance Gentrack's own airport management software, Airport 20/20. The company already has 26 airport customers.

Gentrack's second target, Malta-based CA Plus, was bought under a similar contract with 75% being acquired for NZ$11.4m, with a three-year management earn-out for the remaining 25%. Of the two acquisitions, CA Plus is the most speculative – being only a start-up – but the company has a unique, interesting product that shows promise.

Airports typically charge retail tenants a base rent plus a percentage of sales, and this can contribute meaningfully to the airport's income in addition to revenue from aeronautical services. Sydney Airport, for example, earns a bit over a fifth of its revenue from retail.

CA Plus's software manages and audits this retail concession revenue, allowing airports to charge variable rates for specific categories of goods to ‘maximise their revenue, manage minimum guarantees, automate their processes and optimise commercial performance' as the company put it.

Fair price

Both purchases will be funded by debt and are expected to add to earnings per share from 2018 onwards. Gentrack's management expects them to double the airport division's earnings before interest, tax, depreciation and amortisation (EBITDA) by 2019, which implies around NZ$2.7m of additional earnings. That being the case, the combined purchase price of NZ$19.8m is around seven times 2019 EBITDA.

For what it's worth, consensus estimates are for Gentrack itself to earn around $36m in EBITDA in 2019, giving it an enterprise value/EBITDA multiple of around eight. It's no bargain but the purchase price doesn't seem outlandish and given the airport division has been a growth machine in recent years – it increased revenue 35% in 2016 – it's good to see management wanting to strengthen its product with enhanced features. Management said global airport IT spending is expected to reach US$47bn in 2024, a 7% annual growth rate, which provides a nice tailwind.

Management has a long-term goal to increase revenue and EBITDA by 10% a year before the inclusion of acquisitions. Gentrack has more than doubled since we recommended buying it a year and a half ago, putting it on an underlying price-earnings ratio of around 30. A high multiple, no doubt, but for a company with captive customers, wide margins, plenty of free cash flow and decent growth prospects, we continue to recommend you HOLD.

Note: With several substantial shareholders, Gentrack's stock is highly illiquid with a large spread between the bid and offer prices. To ensure you aren't caught overpaying, it's important your purchase and sale orders have a limit price and are not made ‘At Market'. 

Disclosure: The author owns shares in Gentrack.