Monday, August 13, 2018

Eh, me: Yeah!

I was too chicken to buy shares of Aimia when they crashed last year. But thankfully I did pick up a position in the preferred shares, as discussed here. The price of those preferreds rose slowly, and then abruptly, so KVF no longer owns any shares.

The loyalty programs Aimia runs are quite successful. For example, some 5 million Canadians are part of Aeroplan, giving the company a lot of buying power whereas their suppliers (i.e. airlines) are on fixed-cost models that are pretty sensitive to swings in revenue. This is what gave me confidence in Aimia's business model, such that I was willing to buy these preferreds even though Aeroplan's main partner was ending its contract in 2019.

I didn't know what the catalyst would be though to get these to trade close to what I would consider fair value, however. I thought maybe Aimia would need to find some new partners and show some financial success, which would entail some execution risk.

But we never got there: what caused the prices to jump were a couple of low-ball offers from the company's current partners. So the partners suggest Aimia's business isn't worth much...and Mr. Market decides to change his mind and pump the prices up! No argument from me, as I'll take the money and run, avoiding the execution risk.

At their current price, the prefs would yield about 8% for the next few years if government yields stay where they are for the next few months. That's not enough for me to stick around, considering the possibilities for things to go wrong. I'm pretty sure I'm leaving some upside on the table here, but I don't think I'm being paid enough in upside to take on the execution risk.

Disclosure: No position

No comments: