Zeus Capital Head of Research Mike Allen caught up with DirectorsTalk for an exclusive interview to discuss Elegant Hotels Group PLC (LON:EHG)
Q1: Mike, Elegant Hotels Group PLC, can you describe your take on the 2016 results?
A1: Yes, sure. So, final results were broadly in line with our expectations, we revised those expectations in June last year, year on year revenue was down 5.2% and the Adjusted EBITDA was down 11.4% and these were approximately 2% lower than our expectations. However, I think it was certainly a year of expansion and consolidation for the Group, following the acquisition of Waves and the signing of the management contract in Antigua, and that actually gives them 40% more room capacity than at the time of the IPO so they’ve been very busy but in a tough market.
Q2: So, what do you think were the key drivers?
A2: I think the drop in occupancy was a key driver behind the EBITDA decline so that fell from 68.4% to just under 63% during the year and that was in line with our forecast for the year. Like I said, they did maintain their pricing growth so the Average Daily Rate (ADR) was up year on year so they’ve held the pricing there. Within the mix, Colony Club was the clear outperformer, that recorded another record year and that was ahead of our expectations with RevPAR up 3% year on year, we were expecting that to be down 3%. Other hotels such as Turtle Beach, The House etc. all saw their RevPAR decline but they were broadly in line with our expectations and were occupancy-led rather than weight-led.
Q3: Are you doing anything with your forecasts?
A3: No, we’re maintaining our present ‘17 and ‘18 forecasts on the back of the statement. Clearly the trading outlook is not easy given the FX fluctuations etc. however we looked at those forecasts a couple of months ago and we’re fairly confident that they’ll hit those forecasts in 2017 where we are expecting a lower outturn versus what they’ve delivered this year.
Q4: Finally, what does the valuation look like for Elegant Hotels Group PLC?
A4: Valuation looks attractive on a long-term view based on our 2017 forecast, it’s taken on a PE of less than 10 and then as they recover we expect in ’18 and ’19 that PE looks a lot more attractive. They’ve held the dividend and that implies the year’s at 8.7% at the moment and the net asset value of the business is in excess of 180p per share as well so very attractive for long-term investors in our view.
