Research: Consumer
Dalata’s FY23 deployment of €156m in high-profile hotel opportunities in London, Amsterdam and Edinburgh as well as the newly announced proposed redevelopment at Manchester Airport show the scale and nature of its accelerating growth strategy, enabled by ‘considerable firepower’ (FY23 net debt to EBITDA after rent of just 1.3x). While the focus on cities in the UK and Continental Europe with favourable dynamics, for example London, is self-evidently appealing, there is reassurance in the success of 2022 openings in the UK and a capital-light approach on the Continent. Dalata’s trading agility (like-for-like FY23 EBITDAR margin in line with 2019 despite high cost inflation) and maturing estate (H223 adjusted EBITDA up 20%) bode well for 2024 after a market-led slow start in Dublin.
Dalata Hotel Group |
A strong hand
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Travel & leisure |
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28 March 2024 |
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Dalata’s FY23 deployment of €156m in high-profile hotel opportunities in London, Amsterdam and Edinburgh as well as the newly announced proposed redevelopment at Manchester Airport show the scale and nature of its accelerating growth strategy, enabled by ‘considerable firepower’ (FY23 net debt to EBITDA after rent of just 1.3x). While the focus on cities in the UK and Continental Europe with favourable dynamics, for example London, is self-evidently appealing, there is reassurance in the success of 2022 openings in the UK and a capital-light approach on the Continent. Dalata’s trading agility (like-for-like FY23 EBITDAR margin in line with 2019 despite high cost inflation) and maturing estate (H223 adjusted EBITDA up 20%) bode well for 2024 after a market-led slow start in Dublin.
Flexible path to growth
While intent on maintaining its market lead in Ireland (6,300 rooms), Dalata aims ‘over time’ to more than double its coverage in regional UK to almost 10,000 rooms and develop in European cities. It has a strong appetite for London, albeit with patience and discipline (it currently supplies only 0.6% of the capital’s rooms). The breadth of hotel ownership interests and contractual arrangements should allow Dalata to maximise opportunities. Although leasing is increasingly prominent (42% of rooms), driving faster growth as it is capital light, ownership in key cities offers potentially significant asset appreciation, for example a landmark conversion site in St Andrew’s Square, Edinburgh (cost €58m, opening 2026) and 216-room extension and revamp (cost £40m, opening 2027) at Manchester Airport.
Encouraging resilience
With prior year comparisons distorted by COVID-19 restrictions and government support in H122, we highlight, against 2019, the maintenance of the FY23 like-for-like EBITDAR margin despite c 20% higher minimum wage rates and elevated energy costs. Also compared with 2019, FY23 free cash flow up by a third delivered year-end net debt to EBITDA after rent of 1.3x (management ‘comfortable’ with 2.0–2.5x) as well as €0.3bn cash and undrawn debt facilities, hence there is ‘considerable firepower.’
Valuation: 29% market discount to ‘fair value’ NAV
At 8x FY24e EV/EBITDA, Dalata’s trading valuation is undemanding against an average of 9x for 2024e for European peers. There is also strong asset appeal not only in terms of the c 30% share price discount to ‘fair value’ NAV of €6.23 at December 2023 but potentially lucrative medium-term investment, given Dalata’s record of value creation (€0.5bn property valuation uplift in the decade since IPO).
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Consensus estimates
Source: Refinitiv. Note: *Excluding exceptionals. **Including €15.2m COVID-19 related government support. |
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Research: TMT
S4 Capital had a difficult FY23, as flagged, with reduced client confidence and spend, particularly from those clients in the tech sector, and on larger transformation projects. Management is cautious in the short term, with no substantive changes likely in H124, but sees conditions likely to improve in H224 as economic pressures ease. The group’s longer-term prospects should be buoyed by its positioning across data and digital marketing and, in particular, in incorporating AI into hyper-personalisation at scale. The share price is down 77% y-o-y, -22% year-to-date, reflecting the history and short-term prospects rather than a medium-term view.