Alphavalue/ Divacons | Meliã Hotels International has occasionally outperformed its sector over the last two years, supported mainly by a portfolio structurally geared towards high-yield leisure demand and differentiated resort concepts, which account for more than 60% of its hotel base. This positioning allows the group to capture premium leisure flows, along with demand linked to resilient businesses in popular destinations, especially in Southern Europe and the Caribbean. The post-COVID recovery has coincided with a strong improvement in balance sheet quality, marking a clear turning point in Meliá’s investment thesis.
Historically, high leverage constrained capital allocation and limited the group’s ability to accelerate expansion, renovate assets or return capital to shareholders. This constraint has virtually disappeared. After two years of disciplined deleveraging, we expect net financial expenses to fall by around 30% in 2025, providing a significant tailwind to cash generation. Together with more disciplined maintenance capex following an intense cycle of renovations carried out during periods of depressed activity, FCF generation is expected to increase by approximately one-third this year. This renewed financial flexibility allows Meliá to refocus on value-creating growth, portfolio improvements and a gradual normalisation of shareholder remuneration.
Meliã is returning to a phase of expansion with a clear qualitative bias. Room growth is expected to average between 2% and 3% per annum, supported by a structurally improved contractual mix, increasingly oriented towards asset-light models through management and franchise agreements. The group is expected to exceed 400 hotels in 2026 and aims to have more than 100,000 rooms in 2027. Expansion continues to follow the group’s so-called holiday axis of the Caribbean, Mediterranean and Southeast Asia, with a growing focus on luxury and upper upscale brands. High-end concepts already account for 63% of the operating portfolio and 78% of the pipeline. Management has reiterated its preference for organic and asset-light growth, with any structural changes more likely to be financed through capital increases than through M&A.
From an operational standpoint, profitability continues to benefit from a favourable shift in the mix towards higher-margin channels and segments. Direct sales now account for around 50% of total revenue, more than double the figure for 2017, supporting structurally higher margins thanks to lower distribution costs and greater customer ownership. Although this share is probably close to a sustainable ceiling, the combination of direct distribution and an increasingly effective loyalty programme provides a solid buffer against competitive pressure from online platforms. Furthermore, Meliã is well positioned to benefit from the continued recovery of the MICE segment, which is expected to grow by more than 10% in 2026, especially in Spain, the United Kingdom and the United States, supporting weekday demand and rate stability.
Assessment: Our valuation multiples point to attractive upside potential, especially on an NAV basis, even under conservative assumptions. Management has reiterated its commitment to progressively increase shareholder remuneration, although it has indicated that share buybacks remain incompatible with Spanish corporate tradition, a notable difference from large European peers that currently combine dividends and buybacks. Given the capital requirements of the ambitious expansion and luxury transformation projects underway, we expect the dividend payout to increase from around 15% in 2024 to 20% in 2025, with a gradual normalisation towards pre-pandemic levels of 30% in 2027. Overall, we believe the group is well positioned to deliver another strong summer season and realise upside potential of close to 25%.
