Scandic Hotels Group — Tender indeed is the North

Research: Consumer

Scandic Hotels Group — Tender indeed is the North

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.

Richard Finch

Written by

Richard Finch

Analyst, Consumer

Consumer

Scandic Hotels

Tender indeed is the North

Travel and leisure

QuickView

1 March 2024

Price

SEK54.00

Market cap

SEK10.3bn

Share price graph

Share details

Code

SHOT

Listing

Stockholm

Shares in issue

191.3m

Business description

Scandic Hotels is the largest hotel operator in the Nordic region with about 260 mid-market hotels and 53,000 hotel rooms, predominantly under long-term leases. It also has a growing presence in Germany (seven hotels with c 2,500 rooms) and recently entered the economy segment with its new Scandic Go brand.

Bull

Well-invested estate with leading hotel brand (15% share) in resilient Nordic markets.

Post-COVID-19 expansion opportunity with prime site availability and on advantageous terms.

Robust finances (0.6x net debt including convertible bond/adjusted EBITDA at end 2023).

Bear

Macroeconomic uncertainties but has shown ability to adjust, notably during the pandemic.

Reliance on long-term leases mitigated by variable rent agreements.

Execution risk in terms of planned expansion but good track record.

Analysts

Richard Finch

+44 (0)20 3077 5700

Russell Pointon

+44 (0)20 3077 5700

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.

Consensus estimates (pre-IFRS 16)

Year
end

Revenue
(SEKbn)

Adjusted EBITDA* (SEKbn)

EPS
(SEK)

DPS
(SEK)

EV**/adjusted EBITDA* (x)

12/22

19.2

2.10

4.10

0.0

6.3

12/23

21.9

2.49

5.09

0.0

4.7

12/24e

22.4

2.50

N/A

2.0

4.7

12/25e

23.6

2.70

N.A

2.3

4.3

Source: Scandic Hotels. Note: *Excluding non-recurring items (2022: SEK433m; 2023: SEK74m). **Including convertible loan (2022: SEK1.5bn; 2023: SEK1.1bn).

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General disclaimer and copyright

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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