Dalata Hotel — A strong hand

Research: Consumer

Dalata Hotel — A strong hand

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.

Richard Finch

Written by

Richard Finch

Analyst, Consumer

Consumer

Dalata Hotel Group

A strong hand

Travel & leisure

QuickView

28 March 2024

Price

€4.41

Market cap

€986m

Share price graph

Share details

Codes

DHG (Euronext Dublin), DAL (LSE)

Listings

Euronext Dublin, LSE

Shares in issue

223.5m

Business description

Dalata Hotel Group is an integrated owner and operator of mainly four-star hotels in gateway cities and regional centres in Ireland, where it is market leader, and increasingly in the UK and Continental Europe. Its current portfolio is c 11,400 rooms (53 hotels) with an announced pipeline of over 1,500 rooms.

Bull

Diversified, well-invested estate in prime locations, backed by Ireland’s leading hotel brands.

Proven growth strategy, enabled by asset-backed balance sheet, low gearing and flexible model.

As owner/operator and developer, it has full exposure to the hotel real estate value chain.

Bear

Macroeconomic uncertainties and inflationary pressures, notably payroll, mitigated by continued scope for efficiencies and innovation.

Notwithstanding active diversification, it has a trading reliance on Ireland (c 69% of FY23 EBITDAR).

Execution risk on planned expansion but good track record.

Analysts

Richard Finch

+44 (0)20 3077 5700

Russell Pointon

+44 (0)20 3077 5700

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).

Consensus estimates

Year
end

Revenue
(€m)

EBITDA*
(€m)

EPS*
(€)

DPS
(c)

Yield
(x)

EV/EBITDA*
(x)

12/22

515.7

183.4**

31.7

0.0

N/A

9.5

12/23

607.7

223.1

41.7

12.0

2.7

8.6

12/24e

660.0

240.0

42.0

12.0

2.7

8.0

12/25e

690.0

253.0

45.0

13.7

3.1

7.5

Source: Refinitiv. Note: *Excluding exceptionals. **Including €15.2m COVID-19 related government support.

6

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This report has been prepared and issued by Edison. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. Where Edison has used consensus estimates within this publication, we do not guarantee their accuracy or completeness.

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No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

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Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

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The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

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This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

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Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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