Elegant Hotel Group Plc (LON:EHG) has delivered a short but robust trading update, which confirms it continues to trade in line with expectations. Encouragingly, booking trends are also ahead of last year as we enter the peak trading period. We are maintaining our forecast assumptions on the back of this, and believe the valuation, asset backing, and yield look attractive.
Trading update: Elegant Hotel Group has issued a trading update in relation to the 12 months ended 30 September 2018, which essentially confirms that the Group is trading in line with expectations. Full year results will be announced on 15th January 2019.
Booking trends: Bookings are said to be tracking ahead of the same period last year. While Elegant now has an extra hotel in the portfolio vs. last year with Treasure Beach, we believe booking trends across the rest of the portfolio is also ahead YOY, which is encouraging, particularly as we move towards the key trading period. Perhaps the only near-term risk is sterling weakening from here ahead of Brexit. That could have an impact on booking trends, but this clearly is not occurring at present.
Barbados tax changes: As we flagged in our note on 31 August, the changes to taxation implemented by the newly elected Government of Barbados has not had a material impact on results during the period. In the statement, the Board has also indicated that it does not believe such changes will impact the financial year to September 2019, albeit the matter continues to be monitored closely. On the back of this, we remain confident that given the low relative cost of the tax for the consumer, and the already stated intention of a number of operators to pass this on to the consumer, the impact both from a demand and margin perspective should be limited for Elegant.
Forecasts: We are maintaining our forecasts on the back of this update. We base our Sterling EPS forecast on an assumed GBP:USD of 1.35 vs. the current spot rate of 1.29. We leave this assumption unchanged for now and will update at the year-end or if there is a more near term significant movement.
Investment view: The Elegant Hotel group share price has weakened further post our last note, leaving a highly attractive valuation in our view. The shares are now trading on a 2018E P/E of 8.2x falling to 7.7x in 2019E, with an EV/EBITDA of 7.3x and 6.7x respectively. The dividend yield is now c.6% based on 2x cover. The shares also have significant asset backing and are trading at a c60% discount to NAV (143p per share – this was the last reported and based on a recent asset valuation). We are forecasting the NAV to increase above 150p in the forecast period as we anticipate net debt to fall from here.