|Shares Out. (in M):||56||P/E||15.7x||14.7x|
|Market Cap (in $M):||675||P/FCF||10.9x||10.0x|
|Net Debt (in $M):||255||EBIT||107||111|
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Note: Interval reports after close today
Thesis / Key Points
We believe that Wall Street's disdain for the timeshare business extends unfairly to the valuation of Interval, in part because of its short history as a public company and in part because of the lack of any good public comparables. Nevertheless, Interval is a relatively non-cyclical business with low capital intensity, steady cash flows and high ROIC.
Founded in 1976, Interval has grown to become the second largest vacation ownership exchange in the world, with a 35% market share. Importantly, Interval is not a timeshare developer; the company owns no properties and offers no financing. Instead, Interval provides network exchange services for owners of existing timeshare properties, contributing significant value to the industry's value proposition. In May 2007 Interval acquired ResortQuest Hawaii (renamed Aston), a hotel and resort manager, for $110 million. Interval Leisure Group, Inc. was formed in August 2008 as part of Barry Diller's IAC/InterActiveCorp's separation of its businesses via spin-offs.
Aston (< 5% of company value)
Points from conversations with vacation ownership executives at Disney, Westgate Resorts, Marriott Vacation Club International, Hyatt, and Southern Sun
Risks / What Would Indicate We Are Wrong?
Based on a discounted cash flow analysis, cross-checked against comparable company analysis, we arrived at a price target of $20/share, 67% above current levels.
Discounted Cash Flow Analysis
Utilized 3 ½ year projections with the following assumptions:
|Fiscal Year Ending 12/31||2005||2006||2007||2008||2009||2010||2011||2012|
|Total Adjusted EBITDA||105,412||119,180||141,860||145,786||142,070||146,691||155,330||170,881|
|% of sales||40.4%||41.3%||39.4%||35.6%||36.1%||36.2%||36.2%||36.9%|
|EPS||$ 0.76||$ 0.81||$ 0.91||$ 1.08|
|Levered free cash flow||93,604||102,510||114,706||106,885||61,688||67,745||74,974||86,032|
|WACC||8.0%||$ 18.62||$ 19.83||$ 21.03||$ 22.24||$ 23.44|
|9.0%||$ 18.05||$ 19.22||$ 20.39||$ 21.56||$ 22.73|
|10.0%||$ 17.50||$ 18.63||$ 19.77||$ 20.91||$ 22.05|
|11.0%||$ 16.96||$ 18.07||$ 19.18||$ 20.29||$ 21.39|
|12.0%||$ 16.44||$ 17.52||$ 18.60||$ 19.68||$ 20.76|
Even assuming zero membership growth and zero margin expansion, we still arrive at a price target of $15.25.
Comparable Company Analysis (as of 11/11/09)
|Starwood Hotels & Resorts Worldwide Inc.||HOT||13.6x||13.4x||13.7x|
|Wyndham Worldwide Corporation||WYN||8.4x||8.3x||8.7x|
|Interval Leisure Group (current)||IILG||6.6x||6.5x||6.3x|
|Implied IILG Price at Average||$ 20.15||$ 20.69||$ 21.38|
How It Plays Out
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