Action Hotels Plc (LON:AHCG) has delivered a robust set of H1 results with adjusted EBITDA progressing +18% YOY as significant investment continues to be made driving +30% YOY increase in rooms (now running in excess of 2,000 rooms). We maintain our headline forecasts on the back of these results, albeit these are slightly more H2 weighted (65% vs. 61% at the adjusted EBITDA level) vs. last year. At current $ spot rates the NAV is likely to exceed 100p if we adjust for the deferred tax provision, and is also backed with a dividend yield of 4% implying compelling value at current levels in our view.
H1 results: Action Hotels has delivered a robust set of H1 results for the six months to 30 June 2016. On the back of a 30% increase in the number of operating rooms vs. the same period last year, revenues were +18% YOY, with adjusted EBITDA growing at the same level to $7.2m vs. $6.1m last year. EBIT (post pre-opening costs of $0.8m) was $1.7m vs. $2.1m last year albeit this was due to a 51% increase in depreciation and amortization following the significant investment undertaken in the period. Interest costs were also significantly ahead as anticipated at $5.6m vs. $2.7m last year, implying a loss for the period as expected. Cash generation was strong with cash conversion (cash from operations as a % of adjusted EBITDA) at 80% vs. 52% last year owing to a strong working capital performance (payables). The interim dividend was +3% ahead of last year signaling ongoing confidence from management. Property values have also increased by $36m to $428m at the year end, resulting in a NAV of $187m, which, at the current $ spot rate equates to 96p per share and is pre any deferred tax provisions.
Key themes: The mature hotels continue to trade well and give us confidence in our original thesis. Occupancy levels in the mature hotels were largely maintained YOY at 74.7% (albeit with ibis Salmiya and ibis Sharq in Kuwait running at c90% – Sharq slightly ahead of 90%), with the average occupancy breakeven still very low at c35%. The Group’s largest hotel ibis Styles Brisbane (367 rooms) broke even in month two, and occupancy post the period end is in excess of 50%. New openings remain on track, with the Group recently announcing the acquisition of a prime freehold plot in Dubai’s Media City, with an exciting JV also in process with AccorHotel’s Novotel brand in Dubai’s Healthcare City.
Forecasts: We are maintaining our headline forecasts on the back of these results, which echoes management confidence in hitting expectations for the full year. On the face of it the implied H2 EBITDA of $13.3m compares to $9.4m delivered last year, which we believe is achievable given the investment and progress delivered to date. Pre-opening costs are trending slightly ahead of our FY expectations, but cash generation also looks slightly better at this stage.
Investment view: We believe the shares remain significantly undervalued trading at a 42% discount to our FY NAV projection of 92p albeit this was struck at a $1.44 pre Brexit. If we apply a current spot rate of $1.33 to our projections this increases to 100p per share, which is compelling at current levels especially with a 4% dividend yield on offer. Overall, we continue to see significant long term value at current levels backed with a strong management team who continue to execute the strategy very well.
