Small Caps | Sep 07 2015
This story features STRATA INVESTMENT HOLDINGS PLC. For more info SHARE ANALYSIS: MTR
-Leisure demand increasing
-Corporate recovery expected
-Is the stock overpriced?
By Eva Brocklehurst
Occupancy in Australia’s tourist resorts continues to improve, benefitting from both local and international demand on the back of a weaker Australian dollar. Mantra Group ((MTR)) is well situated in this regard, having added 11 properties to its portfolio over FY15 with a further five in July. The company expects 14 properties to be added in FY16.
Rates and occupancy in the CBD division were flat so underlying growth was fairly weak in FY15. Irrespective of this observation, most brokers are upbeat about the outlook. Weakness in Darwin, Brisbane and Perth may drag on FY16 but UBS believes the portfolio is well able to compensate for this, with momentum in Far North Queensland, Gold Coast, Sunshine Coast, Sydney and Melbourne. The balance sheet is also robust and interest cover at comfortable levels.
The share price has eased since early June and UBS finds the valuation now more compelling. Any further depreciation in the Australian dollar will be supportive. UBS upgrades to Buy from Neutral.
Regardless, this is not enough for Moelis, in terms of the stock’s premium multiple to the market, particularly when growth is linked to acquisitions in a competitive environment. A meaningful improvement in CBD rates is required before the broker becomes more positive. Moelis, not one of the eight brokers monitored daily on the FNArena database, maintains a Sell rating with a $3.29 target.
The outlook bodes well for a hotel and resort operator, in Morgans’ view, with a recovering corporate market and strong inbound and domestic leisure demand. Earnings growth in FY15 reflected increased occupancy, strong growth in online bookings, contributions from new properties and cost control. The broker is attracted to the quality of the diverse portfolio but, as the stock is trading on an FY16 price/earnings ratio of 20.3, a Hold rating is retained.
Credit Suisse concedes the stock is not cheap. Nevertheless, because revenue tailwinds are strengthening and the acquisition pipeline is significant, with an under geared balance sheet, the broker remains happy with an Outperform rating. Early FY16 guidance for 15-19% growth in earnings comes despite headwinds in the Northern Territory and the cycling of some one-off CBD work in Brisbane.
Macquarie agrees the company is in an enviable position, highlighting a buoyant market. Even the CBD market is considered to be tracking well despite the relatively lacklustre corporate sector. The broker envisages upside to forecasts, without a further boost from new properties. Deutsche Bank is of a similar view and retains a Buy rating predicated on the organic growth profile and exposure to positive industry dynamics.
Bell Potter considers the outlook sound. The company has signalled an improvement in occupancy levels in the CBD, particularly in Melbourne. New supply is short and the broker expects this trend to affect occupancy levels in both Sydney and Melbourne.
The portfolio remains exposed to the strong growth in visitors from China and Bell Potter expects this will address the supply excess over and above domestic consumption. Meanwhile, domestic leisure is improving, with increased demand assisted by low-cost airline capacity into Queensland. Bell Potter, not one of the eight brokers monitored daily on the FNArena database, sticks with a Buy rating and $4.10 target.
The database contains four Buy ratings and one Hold (Morgans). The consensus target is $3.83, suggesting 15.6% upside to the last share price. Targets range from $3.55 to $4.10.
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