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Kuoni post-holiday glow explains would-be suitors

Switzerland's Kuoni has gone from planning posh holidays for jaded wealthy folk to processing visas for the likes of the Saudi Arabia government. The shift leaves it less vulnerable to competitors and geopolitical risks. Private equity interest shows opportunistic buyers are circling.

Kuoni cashed out of its traditional tour operating roots last year, selling operations in Europe, India and Hong Kong. The internet has hurt travel agents as holidaymakers plan their own trips and compare prices online. Unrest in tourist hotspots like Egypt and Tunisia is also squelching demand.

Global tourism is on the up, however - growing 4.3 per cent in the first eight months of 2015 according to the United Nations World Tourism Organization. Kuoni has repositioned itself to sell back-end services to the sector. Turnover at the group's Global Travel Distribution division, which is a kind of business-to-business wholesaler for hotel rooms and other services, grew 10.6 per cent in the first nine months of 2015.

Its VFS Global division processes visas for governments and turnover grew 26.2 per cent in the first nine months of last year, as fiddly visa paperwork is increasingly outsourced. Kuoni has half of global market share in this profitable business - visas generate one-tenth of group sales, but half of operating profit, after excluding loss-making divisions.

With the shares up 62 per cent since October, Kuoni is no bargain. At the current price, a buyer would have to pay 1.1 billion Swiss francs ($1.1 billion) including the company's net debt. The group is forecast to earn 101 million francs of operating profit in 2017 based on Eikon estimates, or around 75 million francs after tax. That would give a buyer a return on investment of only around 6.8 per cent.

Despite that, Kuoni's growth could yet surprise. Two-thirds of the world's population needs visas to travel. Identity management and citizen services for governments have big potential. Then there's China. Kuoni announced a tie-up with China's HNA to develop outbound travel only in November. The Chinese made 62 million trips in the first half of 2015 alone, up from 41 million for the whole of 2007, according to China Travel Guide. Investors ought to be wary of selling while Kuoni is so early into its next journey.