€455m hotel deal praised

The purchase by the country’s largest hotel operator Dalata of the Moran Bewley’s Group for €455m is a transformational move that carries a potential share price upside of as much as 42%, according to analysts.

The deal not only adds more than 50% to Dalata’s room base and increases the number of owned rooms from just under 800 to more than 2,900, but could also increase earnings to €60m by 2016.

With earnings before interest, taxation, depreciation and amortisation (EBITDA) of €32.5m, rising on a pro-forma basis to €46m with the inclusion of the Moran Group assets, the forecast represents a very significant rise in earning potential as a result of the deal.

The projection by analysts at Davy Stockbrokers is based on a number of factors, including value-creating revenue growth opportunities and cost-saving potential.

“The transaction is consistent with the group’s strategy and is value enhancing. We believe the enlarged entity — with its leadership of the Irish hotel sector extended with a particularly strong position in Dublin — can generate EBITDA of €60m by 2016. This supports a price target range… 28% to 42% above the current share price,” the analysts said.

The Moran Bewley’s Hotel Group (MBG) consists of nine hotels of which 57% are in Dublin; 4% in Cork and further 39% in the UK.

Among the properties included are the 109-room Silver Springs Moran Hotel in Cork and Bewley’s Hotel in Ballsbridge, Dublin.

Having purchased the Red Cow Inn in 1988, Tom Moran continued to expand his hotel empire to the point that following the purchase of the Bewley’s hotel group in 2008, its valuation stood at approximately €800m.

In hindsight, the deal which was entirely debt-financed placed the group in a difficult position as the economy fell into a deep recession and MBG struggled under the weight of its debt burden which at the end of 2013 stood at more than €200m.

Just shy of 90% of trading profit in recent times went to servicing the debt but despite its troubles, revenues began to improve climbing from approximately €70m in 2011 to €80m two years later.

Dalata’s purchase of MBG was funded by a mixture of existing cash reserves, bank debt and the issuance of more than 18m shares at 275c per share.

With high occupancy levels, little new capacity imminent and rising demand, Davy analysts consider the newly enlarged group to be ideally positioned to take advantage of growth prospects in the coming years.