Accor: Barclays praises Accor’s geographic strategy and upward shift

(BFM Bourse) – The British bank raised its view on the hotel group “overweight”. The business believes its discount to its UK rival IHG is too steep and believes there is an entry point to play for a medium-term position on the stock.

Accor was one of the headlines not to be missed in 2023. The hotel group gained almost 50% last year and recorded the fifth largest increase in the SBF 120. The renewed stock market form of the company led by Sébastien Bazin also allowed it to return to the CAC 40 last March (it was dropped in 2020).

Year-to-date, the hotel company continues to outperform the Paris market, gaining 9.5% for the full year 2024, compared to 0.9% for the CAC 40.

However, if you look closely, Accor is leaving behind its best-known counterpart, the British IHG, whose market rumors have occasionally pushed it into the arms of the French group. IHG picked up 15% from 1 January and 52% within a year (compared to 17% for Accor).

Enough to prompt Barclays to raise its view on Accor. The British bank moved from “online weight” to “overweight,” which equates to buy in its nomenclature, on the CAC 40 resident. It also raised its price target to €48 from €33 previously. Which gives a potential of over 28% at Tuesday’s close.

On the Paris Stock Exchange, the stock was up 2.3% by 10:45 a.m., the biggest gainer in the CAC 40.

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Unauthorized discount

Over the past twelve months, Accor has “significantly” lagged behind its stock market rivals. The stock market discount to IHG is around 35% based on the gross operating profit (Ebitda) expected in 2024. But before the pandemic, this discount was only 12%. Accor’s EBITDA multiple also fell to 10.7 compared to the pre-pandemic historical average of 11.6.

All this, while Accor’s trends in terms of revenue per available room (RevPar, “revenue per available room”, a key indicator of activity in the hotel sector) are currently by far the most robust in the sector, according to Barclays. Especially since Accor is exposed to less risk than its main competitors in the United States and China and more so in the Middle East and Asia Pacific excluding China.

In fact, Accor is even becoming “progressively the most attractive hotel operator in terms of geographic location,” Barclays points out. In particular, the group is poised to capitalize on the rise of India, which is expected to become the world’s fourth largest foreign spender by 2030 thanks to a growing middle class. However, Indian tourists mainly go to Asia and the Middle East, where Accor is very present.

Luxury in force

At the same time, Accor is gradually raising the center of gravity towards a higher range. The “luxury” and “lifestyle” segments currently account for 15% of its available rooms, but 34% of its commissions and 24% of planned room openings, Barclays points out. “Although the luxury experience segment is expected to grow at an average annual growth rate of more than 15%, according to (Italian luxury goods foundation) Altagamma, we see this growing exposure to the segment as a definite positive,” the bank said.

This weakness in the stock, which is relatively disconnected from fundamentals, prompts Barclays to consider this an entry point into the stock. The bank sees no short-term catalysts. But he reckons the company’s four-year medium-term plan, if followed through, could lead to average annual earnings per share growth of 15%, growth comparable to IHG.

In June 2023, during an investor day that was highly praised by analysts, Accor said it was aiming to grow its Ebitda by 9% to 12% a year until 2027 and to return around 3 billion euros in cash to its shareholders. . “We believe that if management can meet its Ebitda and shareholder return targets, there is significant potential for equity market multiples to appreciate over the next year or two,” Barclays said.

Medium-term catalysts

Especially since medium-term catalysts could boost the action. The bank reports the sale of Accor’s remaining stake in Accorinvest, the company that owns the premises of its hotels, which resulted from the opening of capital carried out in 2018. This decision allowed Accor to enter an “asset-light” strategy with a reduced property portfolio, like its Anglo-Saxon competitors . However, Accor still owns approximately 30.5% of Accorinvest.

The bank is also considering a potential spin-off of Accor’s “luxury and lifestyle” division in 2025, which could crystallize value.

Of course, Barclays also touches on the impact of the current political uncertainty on the hotel group. “In recent days, the shares have been shaken by the announcement of early elections in France, and although we see risks on the RevPar in France (linked, for example, to a negative impact on the economy or to demonstrations/unrest, editor’s note), we observe that these risks are integrated into the current price and we believe with France accounting for approximately 19% of sales,” writes the British establishment.

“So while we can understand the short-term caution in the face of evolving political events, we view the resulting share price as an attractive entry point over the longer term,” reiterates Barclays.

Julien Marion – ©2024 BFM Bourse

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