Final results are broadly in line with our revised forecasts on most headline levels in what proved to be a difficult year for the Group. That said, it has significantly increased room capacity, which is now +40% ahead at the time of the IPO (+14.5% yoy), which improves its competitive position and offering. We are maintaining our headline forecasts, and with the dividend expected to be held for the foreseeable future producing an 8.7% yield with a NAV in excess of 180p, we continue to believe there is strong long term value offered at present.
Final results: Final results are broadly in line with our expectations revised in June. Revenue was down 5.2% YOY and was 1.5% below our forecast. This was a function mainly of lower occupancy albeit FX with weaker sterling also impacted demand during the period. Adjusted EBITDA was -11.4% YOY and 2.1% lower than our downgraded forecast expectation from June 2016. EBITDA margins slipped from 36.9% to 34.4% as a result with gross margins falling from 62.5% to 61.7% (vs our forecast of 64.2%) similarly driven by weak occupancy.
Key performance drivers: Occupancy was the key driver behind the EBITDA decline and fell from 68.4% to 62.9% during the year (ZC 63.0%). Elegant did see modest rate growth in a difficult market with ADR +1.3% to $378 (ZC $387), driving an implied REVPAR -6.7% YOY to $238 (ZC $244). Within the mix, Colony Club recorded another record year ahead of our expectations with REVPAR +3% YOY (ZC -3%). Turtle Beach did begin to recover from the disruption of the refurbishment works at a neighbouring hotel, but still experienced a decline in REVPAR of -8% (ZC -10%). The House, Tamarind and Crystal Cove all saw REVPAR declines of 8%, 11% and 6% respectively (ZC -9%, -13% and -5%) due to the fall in occupancy.
Forecasts: We are maintaining our headline assumptions following these results. We do make modest changes to the mix of hotels, with Colony Club outperforming our expectations, which is offset by some further disruption anticipated in other hotels following investment. We continue to assume a flat dividend going forward, albeit dividend cover is expected to trough at 1.2x based on our 2017 forecasts before rebuilding to 1.5x in 2019E. We have introduced our 2019 forecasts for the first time, and assume modest REVPAR progress to $247, which remains below the peak 2015 performance of $255.
Investment view: While the shares have rebounded 29% from the trough point of 62p in August, we believe the valuation remains undemanding trading on a P/E of sub 10x trough 2017 EPS falling to 7.8x in 2019E. The current dividend yield of just short of 9% is also clearly attractive along with the asset backing and c60% discount to NAV in excess of 180p. We therefore continue to believe there is good long term value in the shares at current levels.
