The estimates of revenue and profits have deteriorated by the weak dollar and Caribbean hurricanes whose impact report the results for the third quarter of 2017.
Revising down our target price from 14.7 euros / share up to 12.8 euros / share.
We improve the recommendation from neutral to buy because after sustained correction value, this price offers a potential of + 13%.
The results for the third trimester 2017 were weighed down by the weak dollar and the hurricanes that hit the Caribbean in September. Accordingly, the forecast for the whole year become elusive .
– The revenues of the first nine months amounted to 1,458 million euros (+ 5%), slightly below 1,472 million euros estimated by the Bloomberg consensus.
– The EBITDAR and EBITDA progressed + 7% (to 394 million euros and 255 million euros respectively). However, the hotel business showed better performance in relative terms (+ 9% Hotel EBITDA and EBITDA margin Hotelero 17.5% vs. 17.0% in the first months of 2016).
– The increase in the negative financial result (+ 21% to -33 million euros) is explained by exchange differences generated a loss of EUR -18 million (vs. -0.7 million euros in the first months 2016) mainly due to the weak dollar.
– The cumulative net profit (BNA) stood at EUR 114 million ( + 23% ).
Therefore, the results show improvement until September revenue and profit margins but not negligible negative effect of the dollar and hurricanes. Thus, the main operating indicators (first nine months of 2017) reflect slowdown : the accumulated until September RevPar increases + 4% y / y (driven by price increases since the occupation down) when accelerating at a rate of + 7% a / c until June. Specifically, the RevPAR of Hotels and Rental Property (first nine months of 2017) stood at 87.5 euros (+ 6%) and ARR at 120.7 euros (+ 7%), while the employment rate He declined slightly -0.7 basis points (to 72.4%). As for the hotels property, rental and management, RevPar was 74.9 euros (+ 4%); ARR 109.1 euros (+ 6%) and 68.6% occupancy (-0.9 basis points).
The net financial debt (NFD) in September reached 584 million euros (+ 8% since December 2016) but the DFN / EBITDA ratio (calculated Ebitda 12 months: 302 million euros) remains stable at 1.9x, fulfilling the objective of maintaining financial leverage in the 2x / 2.5x range. Aspect that continue to value positively.
In short, the figures for the third quarter determine the next results for the third quarter is usually the strongest of the year due to the seasonality of hotel business holiday bias, such as Meliá. Therefore, the damage caused by hurricanes, the impact of currency and political uncertainty at domestic level are the factors that have led us to revise down our estimates (extending the time horizon to 2022).
The new target price (valuation method: Discount Cash Flow) is 12.8 euros / share (vs. 14.7 euros / previous action) means accepting an EV / EBITDA of 9.5x and PER of 23x. This target price offers a potential revaluation of + 13%, which seems reasonable potential to change our recommendation from neutral to buy.
We have included the value in our model portfolios of stocks. We think that the ” momentum ” Tourism – acting as a tailwind for the sector – has not ended. Moreover, the rise of hotel corporate transactions (M & A) drive valuations and should contribute to the recovery of value after the correction suffered in October. Finally, transformation and repositioning into higher segments of the Meliá hotel portfolio, coupled with control of financial leverage remain the main drivers for growth in EBITDA and margins.