Morgan Stanley Says Hudson Ltd Catalysts Remain Elusive

Hudson Ltd (NYSE: HUD), a duty-paid and duty-free travel retail company, recently offered 39.42 million shares in an IPO, pricing the shares at $19 on Feb. 1.

The Analyst

Morgan Stanley analyst Kimberly Greenberger initiated coverage of Hudson Ltd with an Equal-weight rating and a $18 price target.

The Thesis

Airport retailing provides Hudson with natural protection from e-commerce, given the captive customer and need-based purchasing, Greenberger said in a note. The company is also shielded from competition due to the high barriers to entry and a protective moat around the industry, the analyst said.

Three parties, namely airport agencies, minority-owned small business JV partners and parent company DUFRY AG (OTC: DUFRY) could benefit from the success of Hudson, Greenberger said. However, once these stakeholders are paid, there is little profit or cash flow left to pay its shareholders, with EBITDA and EBIT margins likely to be 10 percent and 4 percent, respectively, the analyst added.

Morgan Stanley sees like-for-like sales, organic sales growth and EBITDA, excluding non-controlling interest, as key value drivers for Hudson.

"We initiate Equal-weight with a positive bias as we see +7% upside to our $18 price target and a 1:5:1 positive risk/reward skew," the firm said. "However, identifiable catalysts remain elusive."

The Price Action

Hudson shares were down about 4.8 percent from the day of its listing on Feb. 1.

At time of writing, shares were down 1.7 percent at $16.47.

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