Elegant Hotels Group PLC (LON:EHG) is the topic of conversation when Zeus Capital’s Head of Research Mike Allen caught up with DirectorsTalk for an exclusive interview.
Q1: EHG, they’ve published their H1 results today, can you talk us through the highlights?
A1: The H1 highlights were robust, revenues was up 3% year-on-year, RevPAR within that was up 1%, they saw 1 percentage point growth in occupancy but the ADR, i.e. the rates, were down 1%. However, despite that, the adjusted EBITDA was up 7% year-on-year, adjusted PBT was up 5% and EPS was actually up at 27% year-on-year but that was largely due to a significantly lower tax rate of 1.5%. The interim dividend was confirmed at 1.3p and that was in line with the rebased policy and flat year-on-year and the NAV that we’ve seen at this stage of the year was reported at 156p per share.
Q2: Did you note any themes in the results?
A2: I think in terms of performance, one of the Elegant Hotels Group’s more recent hotels, Treasure Beach performed very well and that delivered a lot of the growth, I think there were always strong performances at Crystal Cove, Waves and Turtle Beach as well. I think some of the non-all-inclusive hotels found it a bit more difficult albeit with the exception of Treasure Beach.
I think there was a bit of discounting in the rates, that was required, and I think the consumers had seen a bit more tax increases particularly in VAT but also room rate tax as well so there was a little bit of pressure on rates as a result of that.
Q3: Has your forecast changed in any way?
A3: Yes, we’ve reshaped our forecasts a little bit. So, you’ll see our revenue forecasts are up about 9% from 2019 to 2021, that’s really in recognition of IFRS 15 and that was flagged about 6 months ago but we’ve put that into the forecast now as well.
We have reduced the rate assumption that we previously had, particularly due to increasing competition and increasing taxes for the consumer so that reduced our adjusted EBITDA by about 4% in the forecast period. However, EPS, there’s a minimal impact there as we’ve reduced our tax rate assumptions from 10% to 5% so the overall impact on earnings is about 2%.
Q4: In terms of company valuation, how do you see Elegant Hotels Group PLC at the moment?
A4: We think the valuation is compelling, if you look at it on a 2019 PE basis it’s on about 7 times, dividend yield is about 6% and it’s got very strong asset-backing as well at 156p, we’d expect the NAV to grow in future years as we see net debt falling from here. Also, what we haven’t included in our forecast is potentially the impact of refinancing which could further reduce that debt and therefore increase NAV going forward.