Elegant Hotels Group PLC (LON:EHG) has this morning announced H1 results that should position it well to deliver our FY expectations. The YOY movements on most metrics are down as anticipated, and is due to a deterioration of trading conditions which was well flagged last year. That said, we remain comfortable with our FY expectations and are therefore leaving these unchanged. We believe the shares represent good long term value trading at a c.50% discount to NAV with a sector leading 7.9% yield (1.2x dividend cover) at the current price.
H1 results: Revenue was -2% YOY with REVPAR -13% YOY (-5% occupancy and -8% ADR). The weakness in sterling, timing of Easter, renovation of Daphne’s and price mix effect of Waves were all contributing factors in this. This led to a YOY fall in EBITDA of 8%, with adjusted PBT -15% driven by increases in depreciation as a result of the Waves assets and higher interest costs. The upshot of this was a 4.3c YOY reduction in adjusted EPS to 11.0c. The dividend was maintained with the NAV confirmed at 175p per share (which excludes the Treasure Beach assets) based on its H1 net debt position with an LTV of 24%.
Key performance drivers: The group saw declines in ADR as the pricing of hotels was reviewed in the context of weaker sterling in order to drive demand from the UK (where the group gets c.80% of its customer base) and maintain occupancy levels. Within the core hotel mix, ADR was maintained at The House and The Colony Club, despite pricing pressure elsewhere driven by sterling weakness. Maintaining rates in these higher priced hotels remained a key objective to maintain differentiation among the hotels in the portfolio. This had an adverse impact on occupancy as would be expected. While it is early days for Treasure Beach, the performance of Waves continued to exceed expectations which we believe is evidence of management’s ability to successfully integrate assets into the group and bodes well for Treasure Beach in our view.
Forecasts: The Group continues to trade in line with expectations, citing an “encouraging” booking pipeline for the remainder of the year. We are therefore leaving our forecast expectations unchanged.
Investment view: We believe the Elegant Hotels Group PLC valuation remains undemanding trading on a P/E of 10.8x to 2017 EPS falling to 9.0x in 2019E. The shares have significant asset backing and are trading at a c50% discount to NAV (175p). We therefore continue to believe there is good long term value in the shares at current levels backed with a sector leading dividend yield of 7.9%.