Accor ‘to keep pedalling’

Accor Greet
Accor's Greet brand

Accor said that it could see room to grow in Europe, commenting that it would “never be number one” in North America and China.

The group confirmed that it would return cash to shareholders as part of efforts to convince the markets of its value and mooted the idea that it could sell its remaining stake in AccorInvest earlier than anticipated, as long as there was a plan for the proceeds.

Chairman & CEO Sébastien Bazin said that the company would continue “to have cash, we have capacity to open one hotel a day in 2020. Accor is truly optimistic on our capacity to weather many storms”.

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The group restated its target of reaching €1.2bn Ebitda by 2022, reporting 5.9% growth in full-year Ebitda for 2019 to €825m. Revpar growth was up 1.7% across the group, and up 0.6% in the fourth quarter.

In Australia revpar was down 0.8% and the company saw a 7.3% drop in Ebitda for its hotel assets division as a result of the leases related to the Mantra portfolio it acquired in 2018. CFO Jean-Jacques Morin described the “very difficult situation that we see in Australia with revpar. Mantra is very much on the Gold Coast and the bushfires have hit the leisure market”. With Mantra Ebitda 40% down on the initial business plan, the group was taking a €150m impairment. Morin said: “It was the right transaction to do, but when revpar goes down you get an effect on the bottom line.”

Commenting on whether the group would complete its move to asset light with the sale of the Mantra leases, Morin said: “It is not the time to sell the assets when the numbers are as they are, then when they return we will look to do what we did with Movenpick. The business in Australia is such that it will grow in the long term”.

When asked whether the group would sell its remaining stake in Accor Invest, Bazin said: “We have a five-year lock up to 2023. It’s going to be a matter of two things: do we get the green light from the other partners to relieve us from the three years of lock up - we haven’t asked them. We need to have an idea of what to do with the proceeds. The last thing we need is more cash on the balance sheet.”

Accor’s new businesses division saw its Ebitda loss narrow from €20m to €2m, with Bazin telling analysts: “I don’t want to put more capital into D Edge, I can see private equity coming in”. He added: “We’re not going to stop investing, Accor is still engaged in R&D, but I am fairly comfortable that you’re going to see all the money back out of new business.”.

Answering questions on the coronavirus outbreak, Bazin said: “Greater China is 3% of revenue and the number of rooms is more than 10%. Asia Pacific accounts for 33% of revenue.

“Eighty per cent of our people are not working at the hotels. From the start of the outbreak to this morning has cost €5m in revenues. My bet is to look at the past. Look at what the authorities have said. They are doing a hell of a job in handling something which was totally unseen. They will inject as much money as they can [to restart the economy]. I don’t know how long Covid-19 is going to last but we will all work to get back what has been lost in the last few weeks.”

Accor had a portfolio of 739,537 rooms (5,036 hotels) and a pipeline of 208,000 rooms (1,206 hotels) at 31 December 2019, of which 76% were in emerging markets. Bazin said: “The only way you can continue to get through difficult revpar times is to keep signing rooms, you have to keep pedalling. We signed over 18,000 rooms in the last quarter.

“In North America we have 74% branded hotels in the hands of six operators. In Europe only 32% is branded, of which Accor is by far the largest. We still have a lot of room to grow, we need to grow in eastern and western Europe. We need to shout it better - our business model can weather a lot of tempests. Accor is the largest hotel operator on the planet. We are number one everywhere other than [north] America and China and we will never be number one in [north] America and China.

“We knew about the China trade war, we knew about Brexit. We had no clue about Hong Kong, the bushfire, or turmoil in South America, each of those items had an impact and we were able to find [business] elsewhere to beat to Ebitda on the year. It shifts all the time but Accor has the ability to diversify.”

The CEO confirmed the ongoing buyback programme, with another €300m, around 7.8% of today’s market cap and, being discussed, a €400m buyback in 2021.

Bazin said: “A lot of excess cashflow is being provided by this company, money should be going back to shareholders in the form of share buyback. We don’t believe that Accor is appropriately valued.”

 

Insight: Accor is not being appropriately valued is the ongoing cry at the company, so on we go to another share buyback. It would be fair to say that, in this hack’s household at least, news that the font size was to be increased on shampoo bottles at the group was welcomed with more vigour.

This is to be unfair to Accor. Share buybacks are perfectly valid and, thanks to president Trump, any number of US hotel companies have been indulging in them and jolly nice too. So why not? Because we’ve come to expect more from Accor. The group has made a rod for its own back in terms of past daring deals and derring do and yes, it hasn’t always worked out, but, on balance, the company remains ahead.

One analyst pointed to the cash which remained in the pot after all these super-interesting buybacks had been undertaken and Bazin himself pointed to the possibility of offloading its remaining chunk of Accor Invest early. It also looks likely that parts of the new businesses division could be shed. Well, you know, that could all go to another buyback and trying to convince the market of its worth.

We don’t buy that for a second. We hear that it is buying Rotana, which would be a step in the right direction, but comments such as “we will never be number one in [north] America and China” don’t come across as being said with a droopy face, but as an opportunity. The sector is rumbling for another massive merger. Choice? IHG? As ever, Marriott International? Bazin stuck to the target of reaching €1.2bn Ebitda by 2022. This observer suspects Accor will be a very different beast by then.

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