Description

Navigant International (FLYR) is the second largest provider of corporate travel management services in the United States. The company will book approximately $4.2 billion of gross sales and recognize over $350 million of revenue for 2001, trailing only American Express in a highly fragmented industry. The company focuses on businesses with travel budgets between $500 thousand and $20 million and has over 13 thousand clients in 10 countries. Navigant manages all aspects of its clients’ travel logistics, focusing on reducing their overall travel expenses. The company’s business strategy is to grow through acquisition, having made over 35 in the last three years. Navigant has benefited from the trend towards outsourcing non-essential functions by corporate America.

Valuation
Navigant is estimated to have earnings per share of $1.45 in 2002 but due to heavy goodwill expense should have cash earnings of $2.10 giving it a p/e of 9.0x and a cash p/e of 6.2x. Navigant has historically grown earnings over 20% and has indicated its desire to grow at 15% going forward. FLYR trades at 6.9x next year’s estimated EBITDA of $58 million. The company trades at about half its revenues and just over book value, although it has negative tangible book value.

Note – The company will report earnings on February 5, 2002. It announced that it expects fourth quarter revenues of about $80 million and EBITDA of about $10 million.

Risks/Issues
In the wake of the terrorist attacks in September Navigant saw its business slow down. Another incident on US soil would cause its business to be negatively impacted once again. However FLYR focuses on business travelers, who must travel in order to keep their businesses operating.

The company has over $200 million of debt and a debt/capital ratio greater than 50%.

There is no comparable publicly traded company to value FLYR against.

FLYR has a market cap near $200 million and can be very thinly traded.

Catalyst

Navigant’s largest and arguably most important acquisition closed last summer. Sato Travel will expand Navigant’s client base to include the government, military and numerous Fortune 500 clients. The growth and synergies expected from this acquisition have yet to occur as the integration was put on the back burner during the fall’s tumultuous events. Management will now devote the time and effort necessary to make this acquisition the success that was initially envisioned.

Management has aggressively responded to the slowdown in business by trimming annualized expenses by $27 million for 2002. They have done so by workforce reductions and salary reductions for all executives.

The company has little visibility on Wall Street and management has indicated its desire to actively seek additional exposure on both the sell side and buy side.

Navigant has a 10% share repurchase in place.

FLYR was rumored to have been in discussions with a large, acquisition minded company in the travel industry, last summer at a price approaching $20. This company could resurface with increased interest in the future.