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Research, Update 8 Dec 2022

UPDATE – 05.10.2022

In the press release of 25 November 2022, Destination Italia SpA, the main Italian Travel Tech company, leader in quality incoming tourism and experiential tourism for tour operators and international travel agencies, listed on Euronext Growth Milan, announced the signing of a binding agreement aimed at the merger by incorporation of Portale Sardegna SpA into Destination Italia SpA (the “Operation”), to create a leading group in the incoming Italy sector, capable of competing, through the enhancement of corporate assets, technological know-how and the creation of economies of scale in the international B2B and B2C markets in different segments, including high-quality luxury.

Portale Sardegna SpA, an Online Travel Agency active in the tourism sector for over twenty years, has a portfolio of proprietary software systems and brands (including Portalesardegna.com and Network Charming sites) and operates in the B2C market in Sardinia, Puglia, Sicily, and Tuscany with Italian and international customers. It should be noted that, over the last three years, Portale Sardegna has developed a strategic partnership with Welcome Travel Group SpA for the creation of Welcome to Italy an innovative incoming model that combines local tourism specialization with a platform built specifically to digitize the know-how belonging to the network of Local Experts. Portale Sardegna also boasts more than 2.98 million unique organic and not-paid users annually from the Italian and international markets, some of whom book flying & landing tourist services, boats & landing, and experiences through digital properties specialized in the different segments of Italian and foreign customers.

The complementarity between the two companies and the sharing of the same vision, namely the willingness to aggregate two important companies for Italy, will lead the Group to become an international market maker, able to compete on the global Travel Tech stage with the big players in terms of scale, technology, B2B and B2C customer portfolios and focus on the Luxury Travel segment, with a bouquet of tourist experiences unique in Italy.

The strength of the new group will consist in the ability to intercept greater flows of foreign tourists, increase the frequency of purchase of the “tourism product Italy”, seasonally increase demand, enhance the Italian territory and, above all, raise the average value of travel with the proposition of exclusive experiences, tailor-made, so as to be able to exceed, at Group level, the approximately € 40.00 million of transaction “as it is” with an important potential for future growth.

Specifically, the merger by incorporation will generate advantages for the combined entity in terms of expansion of turnover, access to international partners and institutional support, reduction of operational risks, market synergies, competitive advantage at the technological and industrial level, and optimization of the financial structure.

The merger deed is expected to be signed by the end of April 2023 or the beginning of May 2023, subject to the expiry of the deadline for opposition by the creditors of the companies. It should also be noted that, from an accounting point of view, the effects of the merger are expected to be prior to 1 January 2023.

Once the merger process is completed, the shares of Portale Sardegna will be canceled and revoked from the negotiations on the Euronext Growth Milan Market. The shareholders of Portale Sardegna will receive newly issued ordinary shares of Destination Italia according to the conversion ratio of 1 to 2.45 for their original shares. The exchange, which also takes into account the different number of shares in the circulation of each of the two companies, reflects different stand-alone economic evaluations deriving from the corresponding business models with associated degrees of scalability (B2B vs B2C), different growth rates, and financial structures. The share capital of Destination Italia will therefore be held for about 75.0% by the current shareholders of Destination Italia and for about 25.0% by the current shareholders of Portale Sardegna.

Our already published research shows that the size of the business (estimates 2022) in terms of a transaction of Destination Italia is about 3 times higher than that of Portale Sardegna. It should be noted that this relationship is less evident in the half-yearly financial statements of the two companies taking into account the different criteria for accounting for revenues in the financial statements of Portale Sardegna (at the time of booking) and Destination Italia (at the time of the end of the trip). Also, in light of the analyses carried out previously, we consider the exchange ratio indicated in the press release on 25 November to be appropriate for both companies’ shareholders.

We also believe that the new business perimeter and the different size of the combined entity (approximately € 40.00 million of transaction “as it is”) project more ambitious economic targets with reasonableness, also considering the important synergies that can be activated (both in terms of cost and revenue).

With this operation, Destination Italia will, among other things, have the opportunity to take over the important agreement that Portale Sardegna has signed with Welcome Travel Group (a company owned by Costa Crociere and Alpitour) and which gave rise to the Welcome to Italy project and thus the network of Italy Local Experts, an important entity that Portale Sardegna has been able to build and will enhance even more within this group.

Considering what has been communicated, it should be noted that the Group is facing a strong path of growth and development of the business through merger by incorporation. Destination Italia acquires through a single transaction strategic assets such as technology, coverage, and know-how in the B2C market and the Welcome to Italy network of Local Experts. However, while waiting to evaluate the future evolution of the Group, and quantify these important synergies and its growth prospects, we place our recommendation from BUY to U/R, our Target Price from € 2.60 to U/R leaving the level of Medium risk unchanged.

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