easyHotel PLC

easyHotel PLC (EZH) is an owner, operator, franchisor and developer of branded hotels. The company focus on super budget segment of the industry. The company provides comfortable, safe and clean rooms to the customers. The company presently is having 39 hotels with 3,672 rooms under its brand name, out of which 27 are franchised hotels with 2,332 rooms and 12 are owned hotels with 1,340 rooms.

Recent News
On 18^th September 2019,the Board of Citrus UK Bidco Ltd stated that it had received valid acceptances in reference of easyHotel Shares which, together with easyHotel PLC Shares Bidco had agreed to acquire during the Offer or before that.

Financial Highlights (six months ended 31 March 2019, £million)

(Source: Interim Report, Company Website)

For the first half of the financial year 2019 ending 31st March, the company’s reported revenue was up by 52.6 per cent to £7.26 million from £4.76 million in H1 FY2018, driven by the contribution from new hotel openings in Leeds, Sheffield, Barcelona and Ipswich. The total system sales for H1 FY2019 was £20.2 million against £16.1 million in H1 FY2018. The EBITDA (adjusted) for the first half of FY19 stood at £1.46 million versus £0.98 million in H1 FY2018, giving an increase of 48.2 per cent. In H1 FY2019, the company reported a pre-tax loss of £0.12 million against a pre-tax profit of £0.09 million in H1 FY2018. The company’s loss for the period stood at £114,294 in H1 FY2019 against a profit of £67,590 in H1 FY2018. The company reported a basic loss per share of 0.1 pence in H1 FY2019 versus earnings per share of 0.1 pence in H1 FY2018.

Share Price Performance

Daily Chart as at October-14-19, after the market closed (Source: Thomson Reuters)

On 14th October 2019, easyHotel PLC shares closed at GBX 99 and remained the same against the previous day closing price. Stock's 52 weeks High and Low are GBX 100/GBX 64. The company’s stock beta stood at negative 0.34, reflecting the negative movement of the stock as compared to the benchmark index.

Valuation Methodology


Key Risks
Failure to extend the hotel portfolio in line with strategic targets and funding and returns parameters, Brexit increases uncertainty in the political and economic outlook, adversely impacting the business and Brand reputational damage.

Conclusion
In the current period, the cash and cash equivalents decreased to £11 million due to the investment in noncurrent assets. Increase in borrowings due to euro-denominated bank financing to fund the completion of Barcelona. This indicates that the company is highly leveraged. The hotel industry outlook stays uncertain, mainly in the United Kingdom, where the ongoing Brexit negotiations continue to dampen consumer confidence. Although the top-line performance has improved, the bottom-line performance has declined for the period. The company operates in a challenging environment which requires continuous investment, sometimes at the cost of profitability, to stay ahead of competitors. As the company operates in multiple geographies, its profits can be impacted negatively due to foreign exchange rate fluctuations. The company’s P/E, P/CF, EV/Sales and EV/EBITDA multiple are significantly higher as compared to the industry multiple, reflecting overstretched valuations. Moreover, the company is trading near 52-week High, raising doubts at its upside potential at current prices.

In the short-term, the company expects to face challenges from macroeconomic and geopolitical uncertainties, not least from the continuing global trade tensions, which has impacted global growth.
Based on the above rationale and support from valuation done using the above method, we have given a “Sell” recommendation at the closing price of GBX 99 (as on 14th October 2019) based on 7x NTM EV/Sales (approx.) on FY19E sales (approx.).
 
 
*All forecasted figures and Peer information have been taken from Thomson Reuters.

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