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Investec upgrades outlook for hotel group Dalata

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Investec has upgraded its outlook on hotel group Dalata, increasing its earnings expectations by 5 per cent and raising its price target to €7.20.

Shares in the group, which owns the Clayton and Maldron hotel chains, currently trade around €6.40 on the Irish Stock Exchange. Investec’s previous price target was €6.45.

The report, written by said earnings before interest, tax, depreciation and amortisation should reach €115.5 million for 2018, with revenue per available room expected to rise by 6 per cent in both Dublin and regional areas of Ireland, and 3 per cent in the UK. That is marginally ahead of previous forecasts for 5 per cent growth in Dublin, and 4 per cent and 3 per cent in regional Ireland and the UK respectively.

The increased forecasts comes off the back of another strong year of growth in revenue per available room in 2017, fuelled by minimal new room supply in the past decade. Although there is some new supply due to come this year, Investec said it appeared a “significant element” of rooms expected to hit the wider Dublin market in 2019 and 2020 may not appear.

“We share management’s scepticism on the level of new supply that is forecast to come on stream due to a combination of funding constraints, limited contractor availability and a planning system that can be challenging and time-consuming to navigate successfully,” the report said. It estimated “realistic” net addition to Dublin room stock would be around 10 per cent between 2019 and 2020.

Dalata outperformed the market in the provincial UK cities where it has established a presence, and Investec said that bolstered its confidence in its management structure and its expansion plans in the UK. The market saw a revenue per available room growth of 10 per cent in 2017, which Investec said was “eye catching”. However, the report noted that this growth was partly due to the Clayton Hotel Chiswick, which had its first full year of trading following its extension and refurbishment.

“More significant in our view was the average 5pp outperformance versus the market in the provincial UK cities where Dalata has a presence,” the report said.

The report looked at the company’s upcoming projects, with new hotels set to open in the next 12 months in Belfast city, at Kevin Street and Charlemont in Dublin city centre, at South Mall in Cork city and in Newcastle in the UK.

Dalata has not announced any further new hotels, but Investec said it expected further announcements on the UK pipeline in the coming months.

Among the already announced projects is the redevelopment of Tara Towers Hotel in Dublin, which recently received planning permission.

“While not unexpected, it is welcome to see that this project, in a largely residential area close to Booterstown seafront, did not get bogged down in a lengthy planning process,” Investec wrote.

Construction is expected to start later this year, with the hotel scheduled to open in 2020.

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