Research: Consumer
Newly confirmed strong finances (just 0.6x net debt/adjusted EBITDA including convertible loan) and continued Nordic market resilience, allied with multiple growth initiatives, are justifiably reinforcing Scandic’s confidence. Moves into economy (Scandic Go) and Germany mark a widening and accelerating hotel pipeline with clear scope to grow (4% of the estate vs pre-pandemic 11%), while a step-change in digitalisation via the new Oracle OPERA Cloud and enhanced loyalty programme are expected to drive material efficiencies and guest engagement. Financial flexibility should allow the company to address concerns about the maturity of the convertible loan (SEK1.2bn) in October. Consensus FY24 pre-IFRS 16 EBITDA forecast of SEK2.5bn give an EV/EBITDA of c 4.7x.
Scandic Hotels |
Tender indeed is the North
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Travel and leisure |
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1 March 2024 |
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Newly confirmed strong finances (just 0.6x net debt/adjusted EBITDA including convertible loan) and continued Nordic market resilience, allied with multiple growth initiatives, are justifiably reinforcing Scandic’s confidence. Moves into economy (Scandic Go) and Germany mark a widening and accelerating hotel pipeline with clear scope to grow (4% of the estate vs pre-pandemic 11%), while a step-change in digitalisation via the new Oracle OPERA Cloud and enhanced loyalty programme are expected to drive material efficiencies and guest engagement. Financial flexibility should allow the company to address concerns about the maturity of the convertible loan (SEK1.2bn) in October. Consensus FY24 pre-IFRS 16 EBITDA forecast of SEK2.5bn give an EV/EBITDA of c 4.7x.
Q423: Time to invest
Notwithstanding further broadly spread market outperformance in terms of rate-led RevPAR (+5.6%), Scandic’s seasonally quiet fourth quarter was arguably most notable for a step-up in investment, which explains essentially flat adjusted EBITDA excluding non-recurring items (SEK468m vs SEK476m). The highlight was the new IT platform OPERA Cloud for all hotel and central functions, which began to be used in October, with connection across the estate due during H124. Aside from expected operational efficiencies, guest experience should benefit in particular from faster booking, check-in and check-out. The quarter also saw initial full and reportedly successful operation of the first Scandic Go (124 rooms), with a second in Stockholm planned for late summer. Expansion in Germany, another strategic goal, was delivered with a ‘milestone’ lease for a 311-room newly renovated property in Nürnberg, taking Scandic’s local presence to c 2,500 rooms.
Convertible loan: ‘All options are on the table’
Management has been proactive in aiming to protect shareholder value by buying back about a third of the convertible loan in Q423, thereby reducing potential dilution in October to 13% (from 18%). With the conversion price at SEK43.36 and still at some remove from October, financial strength brings welcome flexibility.
Valuation: Undemanding
Continued good demand at better pricing in both leisure and corporate, plus longer-term post-COVID-19 recovery in large meetings business and Chinese visitors, look to support consensus forecasts. These suggest that Scandic’s prospective EV/EBITDA is at a marked discount to that of peers, Meliá and NH, on c 6x FY24e.
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Consensus estimates (pre-IFRS 16)
Source: Scandic Hotels. Note: *Excluding non-recurring items (2022: SEK433m; 2023: SEK74m). **Including convertible loan (2022: SEK1.5bn; 2023: SEK1.1bn). |
EDISON QUICKVIEWS ARE NORMALLY ONE-OFF PUBLICATIONS WITH NO COMMITMENT TO WRITING ANY FOLLOW UP. QUICKVIEW NOTES USE CONSENSUS EARNINGS ESTIMATES.
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Research: Real Estate
Dar Global’s FY23 results showed impressive growth driven by a range of positive factors, which bodes well for 2024 and beyond. Dar Global is in the early stages of delivering over 5,700 residences in the Middle East and Europe and is now looking further afield to markets such as the US for opportunity. We anticipate that it will generate a return on equity in the high teens and we value the company on a multiple of shareholders’ funds basis at c US$930m (US$5.17/share), implying c 40% upside.