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easyHotel sees room for outperformance

The budget hotel group recognises challenges in the UK hotel sector, but still thinks it can outperform
May 23, 2018

Demand for easyHotel’s (EZH) super-budget hotels showed no sign of waning in the first half. The group’s owned hotels enjoyed sales growth of 62.3 per cent to £3.96m, buoyed by three openings in 2017. More impressive, perhaps, was the 11.2 per cent rise in owned hotels’ revenue per available room (revpar) – beating the market by 11.7 per cent in a third consecutive year of double-digit growth.

IC TIP: Hold

Meanwhile, franchised hotels saw sales growth of 14.8 per cent to £0.8m – driven by strong trading in existing hotels, and new openings in Brussels and the Netherlands. On a like-for-like basis, revenue here rose 13.5 per cent.

While top-line momentum was encouraging (see table), the operating margin declined from 3.5 per cent to 1.4 per cent – stemming from both the loss of 70 rooms at the group’s Old Street site, and the trading impact of refurbishing its Croydon and Glasgow hotels. Further down the income statement, pre-tax profit benefited from a significant fall in hotel pre-opening and development costs from £0.11m to £0.05m.

For now, easyHotel looks prepared to advanced its investment pipeline – supported by March’s £50m share placing. Having acquired 269 rooms in the respective period, it will open 928 rooms in total this calendar year.

Investec forecasts adjusted pre-tax profit of £1m and EPS of 0.6p for the year to September 2018 (from £1.6m and 1.2p in FY2017).

EASYHOTEL (EZH)   
ORD PRICE:127pMARKET VALUE:£185m
TOUCH:124-130p12-MONTH HIGH:130pLOW: 84.5p
DIVIDEND YIELD:0.29%PE RATIO:159
NET ASSET VALUE:81.5pNET CASH:£58.1m
Half-year to 31 MarTurnover (£m)Pre-tax profit (£'000)Earnings per share (p)Dividend per share (p)
20173.1459.10.00.07
20184.7690.10.10.11
% change+52+53-+57
Ex-div:31 May   
Payment:29 Jun