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The second wave of COVID is in full swing with the number of cases having reached 96 million people and more than 2 million casualties worldwide. The pandemic is is full rage and the world’s most pressant issue today is to administer as many vaccines as possible to their populations.
Buying hotels and hospitality stocks in this environment may look like a silly idea.
However, in one with or WK scenario for 2021, we feel the time is right to invest in one of the most agile and dynamic hospitality group in the world, boasting a large cash chest to weather 2020 and 2021.
BUY ACCOR SA AC FP @ EUR 30.35
Accor S.A. is a French multinational hospitality company that owns, manages and franchises hotels, resorts and vacation properties.
It is the largest hospitality company in Europe, and the sixth largest worldwide.
Accor operates in 110 countries, with more than 5,100 hotels and 300,000 employees worldwide. Its total capacity is approximately 704,000 rooms. Accor owns and operates brands that cover every segment of hospitality, such as luxury segment (which includes Raffles, Fairmont and Sofitel), premium segment (which includes MGallery, Pullman and Swissôtel), midscale segment (which includes Novotel, Mercure and Adagio) and economy segment (which includes ibis and hotelF1).
Accor also owns companies specialised in digital hospitality and event organisation, such as onefinestay, D-Edge, ResDiary, John Paul, and Potel & Chabot.
The company is headquartered in Paris, France, and is a constituent of the CAC 40 index in the Paris stock exchange.
In a timely move, Accor sold the majority of AccorInvest, which housed nearly all of its owned and leased hotels in 2018, achieving a more asset-light group and refocusing on management and franchise agreements. (Accor still holds 42% of the capital of AccorInvest, which is no longer included in its financial statements)
The company’s new asset-light profile includes managed hotels (60% of rooms) and franchised hotels (33%), and to a lesser extent owned and leased hotels (7%). The sale also rebalanced the weight of the various regions and segments in favor of emerging countries and the luxury segment.
Going forward the company operates through three segments: Hotel Services (management and franchise agreements), Hotel Assets (owned and leased), and New Businesses (acquisitions to diversify its offerings). Some 40% of the company’s rooms are economy, 34% are mid-scale, and 26% are luxury and premium.
ACCOR is also actively diversifying in “Lifestyle” hotels and resorts, partnering with successful brands to develop their concepts on a worldwide basis. It is currently working on Co-Working Hotels, adapting rapidly to the new “Work-form-home” culture adapted to homes away from home.
Accor continues to expand through acquisitions. In 2018, it purchased Mantra (an Australian mid-scale hotel and resort company); Mövenpick Hotels (Switzerland-based high-end hotel operator), and Atton Hoteles (operator of hotels in Chile, Peru, Columbia, and Florida). In order to diversify its assets also that year it acquired Gekko (hotel bookings for business travelers), ResDiary (restaurant bookings), and Adoria (supply management and meal preparation optimization solutions for restaurants).
Like the entire hospitality industry, ACCOR suffered considerably from COVID but its divestment of assets in 2018 cushioned the fall and left it with a solid cash chest enabling it to weather the storm.
Muted business travel and new government restrictions are still stalling the recovery for Accor after the re-opening of hotels, at 90% of the network by September, and leisure activity temporarily boosted occupancies in the summer.
Attention has now turned to practical aspects of its cost-saving program, of which more details will be available by February. The aim is to reduce expenses by 200 million euros on a recurring basis by 2022. New business opportunities, such as co-working spaces in managed hotels, may be capital light ways to claw back some revenue.
Accor’s liquidity of more than 4 billion euros puts it in a very safe position, in our view, even with the current new lockdowns. This means it’s less likely to sell assets at distressed prices and can give some support to AccorInvest partners.
The company stands to lose EUR 1.25 Billion in 2020 and 136 Million in 2021, before returning to profits in 2022. Revenues are expected to recover by 56 % in 2021 after the 58 % decline of 2020.
Analysts are not yet jumping on the re-rating wagon, but the number of SELL recommendations has started to decline
After a significant rebound in November and a lengthy consolidation since March 2020, ACCOR shares re ready to start the second leg of its recovery with a price target at EUR 39, a 27 % increase form current levels.
We see the current levels as a good opportunity to start re-positioning portfolios in the hospitality sector with one of the major European actors ahead of the recovery we expect in the second half of 2021.
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