Low valuation behind Transat A.T.'s appeal

Money Digest, June, 2001

Fully integrated packaged tour operator has solid market share

Transat A.T. Inc. (TSE: TRZ; Recent price: $9.75) is Canada's leading tour operator. It carries tourists to southern and European destinations, markets all-inclusive packaged tours, controls two charter airlines, and manages hotels. The company also controls part of its distribution network. It operates 240 travel agencies and two virtual agencies. This fully integrated tour operator has a 35% share of the Canadian market.

Transat's growth is expected to come from the development of its Internet projects and hotel management division. The two charter airlines -- Air Transat and Star Airlines -- operate a fleet of 27 aircraft. They transport more than 3.5 million passengers a year.

Transat's stock has been attracting attention from brokerage houses: First it is trading at multiples below the historic average. Second, it is trading below its peer group.

Although there is some concern about a possible recession lowering the demand for holidays, Transat still appears attractive. From a long-term perspective, as boomers age there will be more demand for holiday travel. Second, since Transat is selling at lower multiples both from historic and competitive perspectives, it is better-protected than many other companies in the sector. Its attractive multiples also make it a potential takeover candidate.

                           Transat A.T. Inc.
Symbol        TRZ (TSE)
Recent price      $9.75
EPS               $1.08
EPS 2001E         $1.21
PE ratio (E)        8.1
ROE                16.8