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easyHotel swings to loss

The budget hotel group has done well against what it views as a tough UK backdrop – low interest rates and high job numbers
May 30, 2019

The temporary closure of its Old Street hotel and higher depreciation from new hotels pushed easyHotel (EZH) into a first-half loss. The budget hotel business struggled in certain European markets, too, notably in Benelux. But easyHotel’s significant outperformance of the UK hotel market and the reopening of a souped-up Old Street building bode well for the second half.

IC TIP: Hold at 77p

Chief executive Guy Parsons remarked that the UK hotel market “is deteriorating”, with Brexit uncertainty dampening consumer confidence. Overall occupancy rates were reduced to 82.1 per cent (2018: 84.4 per cent), although the average daily rate increased by 13.1 per cent to £44.20. In its 'owned hotels' operated under the 'easy' brand name, revenue per average room (RevPar) was up 10.1 per cent to £36.30, outperforming the wider UK midscale and economy segment by 9.7 percentage points. easyHotel’s success in this area wasn't enough to avert a statutory loss.

Ironically, in view of Mr Parsons' Brexit comments, the deterioration in earnings was partly attributable to a challenging Benelux franchise market, where its hotels are “performing poorly”, according to the chief executive. Benelux was largely responsible for the 3.5 per cent fall in franchise like-for-like RevPAR. He also observed that its Dubai hotel is following the market, which is in decline.

Mr Parsons contended, though, that last year Old Street generated £300,000 in cash profits, which weren’t in the mix this time around. The new facility opens on 8 June, while easyHotel is set to add five new hotels in the second half to the three it opened in the first.

House broker Investec forecasts pre-tax profits and EPS of £1.8m and 1p respectively, for the September 2019 year-end, rising to £4.6m and 2.5p in FY2020.

EASYJET (EZH)    
ORD PRICE:77pMARKET VALUE:£112m
TOUCH:75-78p12-MONTH HIGH:127pLOW: 66p
DIVIDEND YIELD:0.3%PE RATIO:257
NET ASSET VALUE:81pNET CASH:£12.6m
Half-year to 31 MarTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20184.890.10.10.07
20197.3-124-0.10.08
% change+53--+14
Ex-div:06 Jun   
Payment:28 Jun