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Action Hotels Plc

Action Hotels Plc Asset backed Action

Action Hotels plc (LON:AHCG) has delivered final results in line with revised expectations following last week’s downgrade. Revenue and adj. EBITDA YOY growth of 22% and 16% was delivered with a stable adjusted NAV performance. As expected the company has incurred net losses for the year as delays to some hotel openings and significant pre-opening and financing costs impacted performance. We are encouraged by the mature business performance which has delivered stable returns despite challenging market conditions. We continue to believe this is a long term structural growth opportunity with strong asset backing at current levels.

Final Results: Action has delivered results as expected following the statement last week. Total revenue was up 22% to $53.1m (2015: $43.5m), with growth in adj. EBITDA of 16% to $18.5m (2015: $16.0m). The company successfully opened 3 new hotels during the year, adding 620 rooms to the portfolio bringing the total operating portfolio to 2,181 a 39.7% increase vs the end of 2015. Growth in the fixed asset base of $62m was offset by a 20% increase in debt levels due to the accelerating pipeline of hotels, meaning adj. NAV was relatively stable at $207m (109p per share). Significant pre-opening costs ($2.0m), financing costs ($12.8m) and depreciation & amortisation charges ($9.2m) has impacted net profitability and resulted in a net loss for the year of $5.9m. The company remains committed to its intention to pay a progressive dividend and has confirmed a final dividend of 1.5p, bringing the total dividend for the year to 2.26p per share (6% yield), DPS was +2% YOY.

Key performance drivers: The mature hotels (defined as the 6 operating at the time of IPO plus the recently acquired Ibis Budget Melbourne Airport Hotel) delivered a stable occupancy performance running at 76% vs. 77% last year. The accelerated development investment in the less mature sites and delays to key openings during the year meant pre-opening and finance costs impacted profitability generating an operating loss of $5.3m albeit with revenues +275%.

Forecasts: We leave our forecasts unchanged following last week’s update. Given the rapid expansion to date and the near-term uncertainty we expect losses in FY17E and FY18E. We expect net debt in FY17E and FY18E of $337.5m and $372m respectively with LTV of 61% and 60% respectively.

Investment view: While Action Hotels plc has clearly experienced setbacks during the year, we continue to believe the shares remain undervalued with a current NAV of 109p. Our trough NAV of c45p assumes current asset values with peak 2018 net debt and does not include any benefit of future growth. Even on this highly conservative measure, the shares are trading at a discount. We believe this provides support and see significant long term value at current levels backed with a robust mature business and a sound long term strategy.

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