Strong recovery in demand, significant margin improvement, return to profits: Buy Meliá (T.P. 7,76 eur/shr)

MeliáHotel sector figures improve, but debt still large

Bankinter | The Q1 2022 results reflect a greater impact from inflation on costs. For that reason we are lowering our estimates (-6% at EBIDTA level) and target price -5% to 7,76 euros/share. That said, we believe that the share price has over-reacted (down 10% since the publication of results). So it’s a good opportunity to take positions in the stock.

The news flow will improve in the coming months. We foresee a strong recovery in demand in the holiday hotels’ segment, even outpacing pre-pandemic levels during the summer months. Whatsmore, the sector has the capacity to hike prices. That will mean a significant improvement in margins compared with Q1 and the return to profits already in Q2, for the first time in 2 years. Cash flow generation will also be positive, which will allow for improved liquidity and financial position. Our Recommendation is Buy. A potential revaluation of 10%.

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