Travelling Light

You may very well never have heard of Travelport. It’s just attracted an investor (Singapore Bank) prior to a proposed UK float. The Singaporean folks have chipped in £1.78 billion as a demonstration of their faith in Travelport – or evidence of their suicidal madness.
You decide.
Travelport is valued at $3.13 billion. I’ve no idea why, as with debts of $4.1billion it seems to me worthless.
In 2009, total Travelport earnings were $1.72 billion, on which the company made before tax $494 million.
Even this pretax profit figure is a mere 12% of what the company owes. If it were to give the shareholders $250 million in dividends, and pay itself no bonuses (while investing nothing) it would still take Travelport twenty years to pay off this debt.

Bullish Travelport CEO Jeff Clarke told the media that the ‘cyclical recovery’ of the travel business – a way I assume of saying that good times are just around the corner – makes his company ‘a great investment’.
He added that the point of the flotation was ‘to reduce the debt to $2.3 billion’. So in other words, what Mr Clarke needs is investor money to get Travelport out of a deep mine-shaft of debt the company got itself into.

Thus investors in the new plc will be the proud owners of a debt some four times bigger than the last bottom line…assuming Jeff’s belief in a travel sector turnaround is correct.
The press release I read about this came on the same day that travel sector supplier E-clear went into administration. E-Clear’s client Globespan went bust last year effectively because E-Clear withheld £14 million of monies it owed Globespan.
Doesn’t really sound like a sector on the verge of a boom, does it? Especially as the savings mind-set of Western consumers is now an established fact.

Bourses in general deal in this kind of ‘bet’ every day. In my view they shouldn’t, and here’s why: stock markets exist as a way to raise capital and thus enable businesses with some form of track-record to expand. Flotations were never designed as a cheap way to pay off the debts of a company that has borrowed recklessly.