Elegant Hotels Group Plc (LON:EHG) CEO Sunil Chatrani talks to DirectorsTalk about the release of it’s pre-lim results for the year ended 30th September 2017. Sunil explains what he meant by a ‘rebased market’, measures taken to deal with changed market conditions, more info on the Treasure Beach acquisition, the operating environment in Antigua, strategy, M&A / expansion for 2018 and Sunils thoughts on 2018 so far.
The Group’s audited results for the year ended 30 September 2017 will be posted to shareholders in due course, at which point a further announcement will be made.
This was the first full year of a rebased Sterling/USD exchange rate. As a result, given Elegant Hotels’ rates are priced in USD while the majority of its customers are from the UK, it has been necessary for the Group to discount rates at certain of its properties on a targeted and tactical basis. This has inevitably affected the profit margins of the business, but the Group believes that the pricing environment is now much more stable. As such, these market conditions should be seen as the new normal.
Unaudited Financial Highlights
· Revenue up 5.1% to $59.9 million (2016: $57.0 million), reflecting an improvement in occupancy and the addition of Waves Hotel & Spa to the portfolio
· RevPAR (revenue per available room) down 4.6% to $227 (2016: $238)
· ADR (average daily rates) down 6.3% to $354 (2016: $378)
· Adjusted EBITDA* down 7.6% to $18.1 million (2016: $19.6 million)
· Profit after tax down 6.1% to $9.2 million (2016: $9.8 million)
· Adjusted EPS of 10.1 cents per share (2016: 13.1 cents per share)
· Implied Net Asset Value (NAV) of 163 pence per share (218 cents per share†)
· Year-end net debt of $73.1 million (2016: $61.8 million)
· Proposed final dividend of 1.75 pence per share, resulting in a full year dividend of 5.25 pence per share
Operational Highlights
· Successful acquisition, refurbishment and reopening of Treasure Beach Hotel in Barbados, bringing room count up 6.3% to 588 (2016: 553)
· Signed management contract for Hodges Bay Resort & Spa in Antigua, the Group’s first property outside Barbados
· Agreement signed in March to provide sales and marketing services to The Landings Resort & Spa in St. Lucia
· Closure and renovation of The House as part of the ongoing strategy of refurbishing, repositioning and repricing the portfolio
· Occupancy increased to 63.9% (2016: 62.9%)
* The Group uses adjusted EBITDA as a measure of performance as it better represents underlying performance. Adjusted EBITDA is earnings before interest, tax, depreciation, amortisation and one-off costs that are outside the ordinary course of business. Adjusted profit and adjusted EPS reflect the adjusted EBITDA figure.
†based on an exchange rate of £1 : $1.34
Please note that due to rounding, numbers presented throughout this document may not add up precisely to the totals provided. Percentage changes are calculated on unrounded figures.
Commenting on the results, Sunil Chatrani, CEO of Elegant Hotels, said: “The Group delivered a solid performance in 2017 against a background of changed market conditions. The team remains firmly focused on delivering our strategy, and we are pleased with the operational progress that has been made during the year. We have continued to strive for day-to-day excellence, and have invested in our people and systems to ensure that our hotels continue to provide exceptional guest experiences. We have also successfully expanded our sales and marketing presence in the US in order to drive further growth in visitor numbers from that market.
During the year we acquired another hotel in Barbados, in the form of Treasure Beach. We also expanded outside of the island for the first time through a management contract and a sales and marketing agreement on hotels in Antigua and St Lucia, respectively. Trading since the start of the new financial year has remained in line with market expectations, and our bookings are currently tracking ahead of the same period last year. As a result, the Group remains confident in its prospects for FY18 and beyond.”
Zeus Capital said:
Elegant has delivered solid final results, which are 2% ahead of our forecasts at the adjusted EPS level. We are lowering our forecasts to reflect recent investment. Despite the uptick in debt following this investment, the current NAV of 163p should give some support. The dividend has also been rebased to 4.0p per annum from 2018E, albeit the yield on this in excess of 4% remains ahead of the sector average with solid cover in excess of 2.3x.
Final results: Elegant has delivered FY earnings marginally ahead of our expectations. Revenue growth of 5.1% was slightly above our forecast, with adjusted EBITDA (pre $1.1m of exceptional items and amortisation) was 5.5% ahead of our forecast at $18.1m but down 7.6% YOY. Interest costs were $0.7m higher than we forecast at $2.8m with adjusted PBT 2.2% behind our forecast as a result. The P&L tax charge was $0.8m lower than we forecast with adjusted EPS coming in 1.8% ahead of our forecasts. The dividend was 25% below our expectations at 5.3p (ZC 7.0p) following its decision to rebase this after cumulative payments of 14.0p since IPO.
Key performance drivers – RevPAR was down 4.6% to $227 (2016: $238) with ADR falling 6.3% to $354 (2016: $378). The weak RevPAR and ADR performance relative to last year is a result of the group’s more aggressive pricing strategy largely in response to sterling weakness which delivered a 100bps uplift in occupancy levels to 63.9% (2016: 62.9%). The weakened ADR performance also partially reflects the success of the Waves Hotel & Spa, which has a lower ADR and contributed strongly to occupancy. Excluding Waves, ADR would have been $365, a decline of 3.4% compared to the previous year.
Forecasts – We reduce our forecasts to reflect the higher levels of investment made through 2017 and the associated increased depreciation and financing costs. We update our dividend expectations to reflect the updated guidance from the company, which still implies an above average sector yield in excess of 4%. We also introduce our 2020E forecasts for the first time. We assume marginal growth in the level of occupancy from 2019E with flat ADR and RevPAR, driving a 1% uplift in adj. EBITDA vs. our 2019 assumptions.
Investment view – We believe the valuation remains undemanding despite rebasing forecasts trading on a P/E of 12.0x to 2018E EPS falling to 11.3x in 2019E. The shares have significant asset backing and are trading at a c.42% discount to NAV (163p per share). We therefore continue to believe there is good long-term value in the shares at current levels, and its better positioned to capitalise on its consolidation strategy taking into account current market conditions post Brexit.
