20 March 2015 – Expansión
The economic recovery, the record number of tourists and the decrease in the price of crude oil explain the rally (observed in recent months) and (these factors) may continue to play in the hotel sector’s favour.
The outlook for growth in the Spanish economy has been improving in recent months. And, with it, investors’ appetite to capitalise on this trend.
Both companies benefitted from record numbers of international tourists in 2014 (65 million visitors). A trend that could continue in 2015, according to the experts.
The decrease in oil prices (which have dropped by 46% in the last six months) is also boosting the hotel sector. Cheaper fuel reduces costs for airlines (and therefore, the price of tickets), which means an increase in journeys and in the number of tourists.
This factor will have a particularly strong impact on holiday tourism, a segment in which Meliá shines, although it will also have a positive affect on urban and business tourism, the primary focus of NH’s business.
Both company have their own drivers. In the case of Meliá Hotels, a key factor is the appreciation of the dollar (which has risen against the euro by 20% in the last six months). The company has exposure to this currency thanks to its division in Latin America (26% of its business in terms of sales), where its businesses in Mexico and the Dominican Republic are particularly strong. By contrast, the Venezuelan market had a negative impact on the group’s accounts in 2014, as it had to reflect the collapse of the bolivar. However, experts believe that this factor is now reflected in its price.
Meliá has cut its debt by 15%, to €987 million, following the conversion of an issue of convertible bonds amounting to €200 million last December. The company still has another debt issue amounting to €250 million, which matures in April 2018.
The security is supported by a ‘purchase recommendations’ from 79% of the analysis companies, although it is now starting to trade in line with the expectations of some analysts, after rallying in recent months.
Nevertheless, Francisco Rodriguez, at Banco Sabadell, considers that it is trading at a discount of almost 7% with respect to its historical average, in recurrent EV/EBITDA terms (the ratio between the value of a company and the generation of operating profits).
As for NH, the company has benefitted particularly from the ECB’s debt purchase program, which had a positive influence not only on the outlook for Spain but also for the Eurozone, which accounts for 86% of its EBITDA.
Furthermore, the resulting relaxation of debt in the markets is reducing the company’s financing costs, whose debt level amounts to €607 million, i.e. 4.7 x EBITDA.
On the other hand, as Antonio Pausa, analyst at Intermoney, explains, the company has reached an agreement with its creditors to extend the terms of the maturity (of its debt), which has allowed it to “gain some breathing space at the financial level”.
The market regards the new strategic plan favourably, in which NH sets out it plans to increase EBITDA by 25% in 2015.
With all of this, the share price has increased significantly, according to the experts, and so may take a break in the short term. The next catalyst will be the presentation of its first quarter results, scheduled for 6 May.
Original story: Expansión
Translation: Carmel Drake