Santander sets new target price for Melia: €14.1

MeliáHotel sector figures improve, but debt still large

With a differentiated strategic position, Meliá Hotels combines a unique position in the fastest growing markets (Latin America and the Caribbean) with an advantage in a scenario of recovery of the Spanish urban market.

It has a unique exposure to the resorts segment. We like the Meliá exhibition to the tourist segment in the Mediterranean, the Canary Islands and the Caribbean. The company has extensive knowledge and experience (know how) in the three markets, where, in addition, demand has traditionally been more resistant (although we note that past results do not guarantee results in the future) and less vulnerable to the economic cycle.

It has a prosperous portfolio of projects thanks to management contracts. Meliá’s portfolio of hotels pending opening represents c.22% of the size of its system and is being achieved mainly through less capital intensive formulas (management contracts). This reflects the strength of the brand, which could support new projects in the future. We believe that, together with the expansion of margins in this division, this will be the main factor driving the growth of EBITDA in the next five years.

Given the investment boom in hotel real estate assets, Meliá could have some opportunities to materialize value.

To adopt a more optimistic view of the price, we would like to see Meliá increasing its debt exposure to the dollar and solves its profitability problems in leased assets. Meliá Hotels is the leading hotel chain in Spain. As of December 2017, it had 315 hotels and 80,757 rooms in 34 countries. The group owns 17% of its hotel portfolio, rents 28% and operates the remaining 55% under management contracts and, to a lesser extent, franchises. 58% of its portfolio (by number of rooms) consists of tourist hotels and 42% of urban hotels, but mainly focused on the “bleisure” segment (business with leisure). The company’s room portfolio is divided into middle (43%), high (45%) and luxury (13%) categories.

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