Thougths on Aimia / Aeroplan June 14, 2017

With the collapse in the share price of Aimia (owner of Aeroplan) which came after Air Canada announced it will cease its partnership with Aeroplan in 2020, it is worth taking a look at the value of the shares. (Particularly since it was on our list here from 2005 to 2010 and so I have some familiarity with it.)

Aimia announced today it was suspending the dividend. The press release was titled “Aimia Provides Update on Dividends”. Update? Now I would ask what kind of self-respecting person would put that title on the press release? This kind of nonsense is common at many companies and to me indicates a lack of honesty.

The reason the dividend needed to be suspended is interesting. It’s because under the Canadian Business Corporation Act:

A corporation shall not declare or pay a dividend if there are reasonable grounds for believing that… (b) the realizable value of the corporation’s assets would thereby be less than the aggregate of its liabilities and stated capital of all classes.

Okay, so what is the stated capital per share of Aimia? As calculated below its book value is 61 cents per share. That consists of $10.93 per share in share capital and $7.58 in contributed surplus (so a total of $18.51 per share of money raised directly from shareholders, I believe that is the stated capital) plus $0.27 in other comprehensive income and (hilariously) accumulated retained LOSSES of $18.17 per share. $18.51 plus $0.27 minus $18.17 = the 61 cents of book value.

So the dividend had to be suspended if the market value of the assets less liabilities was less than about $18.51 per share. It is a wonder the dividend was not suspended a long time ago. These financial statements clearly indicate a company with a history of destroying shareholder capital.

The share price right now is $1.55 down 18% today on news it has suspended its dividend. And down from about $8.25 in April and down from highs of over $14 in 2013 and 2014.

In a case like this, it is worth looking at the balance sheet to see if it is possibly worth more than this $1.55 even on a liquidation basis.

It’s latest financial statements reveal a book value of just 61 cents per share ($92.7 million divided by 152.3 million shares). So that indicates it is NOT likely worth $1.55 in liquidation.

The balance sheet shows that a HUGE 70% of the assets consist of goodwill and intangibles. Basically this is the value that Aeroplan paid in acquisitions over and above the value of any hard assets it was acquiring. Aeroplan’s tangible book value per share is far below zero.

You might think Aeroplan would hold a pile of cash or investments from selling points to TD bank and AirCanda and all the other places that give out Aeroplan points and other points programs that they own. In fact, yes, they do have what amounts to $4.42 per share in cash and investments. But Whoops, they indicate that the liability to those holding points amounts to $21.29 per share. And then there is debt and other payables.

It is possible that Aimia’s non aeroplan business has value and that the company is in fact worth more than $1.55 per share. But this balance sheet analysis suggests that not only might the shares be worthless but those holding points would also face a large loss of value in the event of liquidation.  Just paying the debt would use up most of the cash and investments in the event of liquidation. But liquidation is not necessarily what will happen.

So, looking at the balance sheet, I see ABSOLUTELY no reason to buy these shares.

My last look at the company on December 30, 2010 stated:

Groupe Aeroplan is updated and
rated Speculative Weak Buy at $13.76. This company has achieved huge growth in
revenue on a per share basis. That alone, indicates it may have potential to
grow earnings per share at a high rate. But a right now the earnings are not
high, even on an adjusted basis. Various accounting issues make it almost
impossible to analyse. Therefore we would not buy it. Perhaps the implementation
of International Financial Accounting when it reports Q1 will clarify matters.

That report also indicated:

We don’t like management’s attitude that it’s okay expire customer’s points. We have concerns about accounting disclosure.

On February 22, 2012 I indicated that I did not trust the ethics at Aimia.

I would have thought that the Aeroplan points holders did not have much to worry about. But looking at the financial statements they do have something to worry about.