Alphavalue | As a European leader in urban hotels, the Spanish chain has experienced a very positive first half of 2019, benefiting from solid momentum in European cities, especially noticeable in the strong recovery in Catalonia. However, the good results have not driven the group´s value, despite very attractive fundamentals, as 94% of the capital in in the hands of MINT (Minor International). The lack of liquidity, together with an unpredictable strategic plan from its Thai owner, have sadly driven investors away.
The number of international arrivals in Europe continued its strong recovery form the lows that followed the terrorist attacks in 2016. Europe represents over half of global arrivals, led by the south and Mediterranean Europe, especially Italy, where tourism clearly recovered during e summer season together with the strong recovery in Spanish urban destinations since the first half of 2019.
Although the Canary and Balearic Islands are still suffering stiff price competition due to cheaper destinations like Turkey and Greece, the strong recovery continues in Catalonia and the calendar of major events in Madrid has maintained the rate of RevPAR (revenue per room) growth in double digits in Spain.
NHH has 37% of its rooms in Spain and Italy with an exposure of close to 90% to the urban market, which will continue to benefit from this positive dynamic. It is expected that after experiencing a very positive first half of 2019 (RevPAR rose +5.3% during the first half of 2019, led by a significant increase in Spain with +10.2%, followed by Italy with +3.6% and Benelux with +2.6%).
After passing from an asset-lite business model, the chain has significantly improved its financial debt position. However, more than 2.7 Bn€ of lease debt (according to our estimates, rental contracts represent 62% of the group´s total portfolio) remains a burden on the company´s books, which affects our valuation.
Our valuation methods are based in the intrinsic value of the company, which offers a considerable upside. In particular, the NAV is driven by the valuable hotels in ownership (1/3 of which are found in Spain and Italy, and are valued at 1.3 Bn€, according to our estimates). However, the robust operational performance and valuable assets have been cancelled out by the low percentage of free float, at 6%. NHH is a difficult question to answer with 100% certainty positively or negatively, but it is almost certain that its valuation would benefit from a solid base.