|Dalata Hotel Group
||EPS - Basic
||Market Cap (m)
|Travel & Leisure
Dalata Share Discussion Threads
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|2016 – The Great Irish Share Valuation Project (Part IV):
Company: Dalata Hotel Group (DHG:ID)
Last TGISVP Post: Here
Market Cap: EUR 821 M
Price: EUR 4.485
Back in 2014, Dalata was still essentially an uninvested Hotel SPAC – valuing it accordingly, i.e. based primarily on its net cash, I tagged it (probably unfairly) as overvalued. Fortunately, management has since lived up to its pedigree & delivered a burgeoning hotel empire – spending, within a year, over €550 million on 16 hotels in (primarily) Ireland & the UK, the transformational deal being the acquisition of the Moran Bewley’s Hotel Group. The company then replenished its war chest in Sep-2015, raising another €160 million from a placing & open offer. Since then, the portfolio’s been expanding steadily (to over 6,600 rooms) with a focus on rebranding & refurbishment as Clayton and Maldron Hotels, RevPAR has increased significantly (to €74.90), while occupancy’s reached 79.0%, with new & existing hotel development opportunities also now being actively exploited. Dublin remains the main profit engine, enjoying 46% EBITDAR margins, followed by the UK (on 36% margins), with the Regional Ireland portfolio the laggard on sub-22% margins. As per today’s trading update, trading remains brisk, with no sign of a Brexit impact – fortunately, a majority of the UK portfolio is hedged with sterling liabilities, so sterling weakness isn’t that significant in terms of return on capital/equity.
Which is very relevant, as I’d prefer a return on equity (RoE) valuation approach here (vs. most analysts & their focus on earnings/EBITDA multiples), reflecting DHG’s deliberate asset-heavy investment policy…which is now far less usual in the sector. H1-2016 net profit (exc. acquisition costs) was approx. €17.5 million, which equates to an annualised 6.3% RoE. However, I suspect H2 net profit will move significantly higher, so FY average RoE might come in closer to 7.5%. But that obviously includes a large depreciation expense, a significant portion of which wouldn’t necessarily be considered economic – so, somewhat arbitrarily (& I think conservatively), if we add-back 50% of the €14 million annual depreciation charge, we’re looking at something more like an underlying 8.8% RoE. [I should highlight that leverage (sub-30% Net LTV) poses no undue risk]. Of course, increasing property values (H1 comprehensive income actually included a €42 million revaluation bump!) could also significantly inflate underlying RoE – accounting for such revaluation potential, current operating performance trajectory, additional debt capacity, plus likely development gains to come, a 1.33 Price/Book multiple should adequately reflect a likely double digit underlying RoE:
EUR 578 M Equity * 1.33 P/B / 183 M Shares = EUR 4.20
Dalata looks pretty much fairly valued here. Its attractiveness as a potential buy will be dependent on whether you’re encouraged by the underlying supply-demand equation (apparently, a substantial under-supply of rooms in Dublin & select UK cities), or are more fearful of the ongoing Brexit implications (I suspect sterling volatility’s more of a risk to tourism flows/patterns than Brexit itself). Longer-term, the impact of Airbnb (& similar services) needs to be evaluated, especially as Clayton & Maldron are more value-biased/budget-conscious brands. Meanwhile, Dalata’s low leverage gives it the flexibility to take a more defensive or offensive stance, as appropriate.
Price Target: EUR 4.20
For related links/graphs/files & other TGISVP analyses/price targets: Google the Wexboy investment blog.|
|This can't but bode well for this hotel group
an increase of 14% FROM 14 TO 2015.|
|A lot of recent acquisitions. These clearly require considerable expenditure of capital and this is presumably keeping the share price depressed but clearly this means increased profits to come. Do others share this opinion?|
|Company: Dalata Hotel Group
Prior Post(s): None New IPO (Mar-2014)
Price: EUR 2.85
Dalata's really just another cash blind pool this time one focused on Irish hotel acquisition bolted on to an existing & much smaller hotel management business. [Run by Pat McCann (a former CEO of Jurys Doyle Hotel Group), and currently operating 40 hotels (with over 6,100 rooms) - over a quarter are located in Dublin, and a third have been re-branded with Dalata's own Maldron Hotels brand]. This is a somewhat perplexing reversal of the normal trend towards separating out hotel ownership (into REIT structures) from asset-light hotel management. You have to wonder if a REIT was originally considered (implying the hotel management entity would have remained private) perhaps the prospect of long-term related-party deals for the management of acquired hotels was a bit much for investors to swallow? Obviously, an eventual spin-out of the management business could be attractive...
Unfortunately, much of Dalata's current management business comes from banks & receivers. If we assume a continuing revival in the Irish economy & tourism, as Dalata predicts, these contracts may end as ownership migrates back into private hands. On the other hand, new (passive) hotel investors may actually be keen to outsource management. Dalata now intends to buy 16-25 hotels we can assume the majority of these already have & will maintain contracts with its management business. [Dalata also plans to develop new hotels for the under-supplied Dublin market]. Bearing in mind these risks, plus the lack of a premium valuation as long as the management business remains buried inside what's essentially a hotel ownership structure, I'd haircut my valuation accordingly. The business reported 2013 revenue of EUR 60.6 million & an operating profit margin of 8.1%. I'd normally assign a 0.75 P/S multiple, but we'll apply a 50% haircut in this instance. We also have EUR 255 M raised from the IPO (net of expenses, at EUR 2.50 per share), plus EUR 4.1 M of net debt:
(EUR 60.6 M Revenue * 0.75 P/S * 50% Haircut + 255 M IPO Cash 4.1 M Net Debt) / 122 M Shares = EUR 2.24
Like the new Irish REITs, Dalata's quite over-valued at this point in fact, only Green REIT (GRN:ID) is more expensive. While I'd clearly be sensitive to price, DHG has an enormous advantage it's a twofer, maybe even a threefer, i.e. it's a property play, but it's also an Irish tourism/domestic spending play. The domestic angle's debatable, as many Irish consumers have opted for bargain staycations in recent years, so we may see them heading abroad again for holidays in increasing numbers as the economy revives. Which might suggest Aer Lingus (see above) is the superior tourism/domestic spending play...but throw property into the mix & Dalata bears watching.
Price Target: EUR 2.24
|Listen: Interview with Dalata Hotel Group (DAL) - Acquisition
Click the link below to listen
|nice start, up 10% first day|
|Just listed, hoping to expand by taking over NAMA properties.|
|I've seen you often on other threads but I can't remember where. What stocks do you currently hold?|
|Gosh, I am sorry to hear that.
No, I just noticed today that DAL was even, AMR down 2% and CAL down 4%, so had a punt on CAL - I always use them for US trips.
By the way, I have a few US threads myself and nobody visits them either - very hard to insert a chart that works. I have a special username for US ADVFN but sadly it's pretty poor.|
|I really didn't expect anyone to pick this thread up Graham!
I have no idea about their trading today. Are you holding DAL? I was a few years back when they went into chapter 3. Held £40k worth and all went up in smoke. Didn't get a penny back :-(|
|Do you know why DAL was so strong today relative to other airlines esp. CAL?|
|Still crying over this one, and nobody to share the pain with!|
|...lost a packet - the whole lot!|
|So I'm the only guy who owned Delta shares eh?|
|Is there anybody out there?|
|Just moi then :-(|
|Did anybody buy Delta Airlines stock before the bankruptcy?|
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