Jurys is well equipped to emerge strongly

WITH fears over Iraq having dissipated and the SARS virus widely contained, one would have thought that shares in Jurys Doyle Hotel group would have performed a little better of late.

While its UK and European peers have been moving higher over recent weeks, Jurys continues to laughish around €7, substantially lower than the € 11 level traded at this time last year.

Profit forecasts have certainly been under pressure, with 11% downgrades to 2003 and 2004 earnings following the company’s AGM last Monday. This, however, is not a feature unique to Jurys, as hotel stocks worldwide have faced downgrades.

More important, commentary from companies in the sector suggests that trading has now stabilised and, while an earnings recovery does not look imminent, news flow should become more positive as we move into the second half of the year.

Widely regarded as a very well managed company, Jurys Doyle has grown from a total of 14 hotels in 1997 to more than 30 hotels.

The Doyle merger in May 1999 positioned the combined entity, Jurys Doyle, as the dominant player in the Irish market, in addition to providing Jurys with an entry into the US hotels market.

Since then, the strategy has been to exit traditional three star hotels, concentrating instead on four star city centre hotels and the roll out of the Inns product in the UK.

As a result of these developments, Jurys now has a diversified geographic and segmental mix of hotels.

The outlook for growth is promising. Five new Inns will be added before the end of 2004 - in Glasgow, Leeds, Chelsea (London), Dublin (Parnell Street) and Heathrow Airport.

In addition, the group has plans to open its first hotel in Boston in the spring of 2004.

Beyond 2004, the outlook remains positive, driven mainly by the continued roll out of the Inns product in the UK. Having identified 70 suitable sites, management are targeting the addition of 3-4 new Inns every year.

This will have a positive impact on profits, as Jurys Inns deliver gross margins ranging between 40% and 50%, compared to 20% to 30% for traditional hotels.

Compound earnings growth of 9% to 11% are forecast over the medium term.

Despite a more attractive growth profile than many of its peers, Jurys Doyle trades on only 10 x 2004 forecast earnings, a 20% discount to its European peers.

This is in part explained by the deterioration seen over recent years in the group’s return on capital employed, following expansion in the UK.

Over time, however, this will improve as more high return Inns come on stream and operating leases become used more extensively in the business.

Widely used by hotel companies across Europe, operating leases allow companies to expand without tying up large amounts of capital in the business. Jurys Doyle has already announced the use of operating leases in two Inns over recent months and its intention to use more in the future.

They should allow Jurys to roll out Inns across the UK without become constrained by debt.

Given Jurys track record, strong branding and established development strategy, the group is well equipped to emerge strongly from the current difficult environment. In terms of risks,a continuation of recent dollar weakness would clearly be a negative for the high end hotels within its portfolio.

However, trading at a 40% discount to the value of its net assets, a lot of bad news already appears discounted in the share price.

This share is certainly one to buy for the coming months.

For further information on Jurys Doyle Group, please contact Goodbody Stockbrokers.Phone [phone],or [phone].