PARIS—Economic buoyancy and quicker-than-expected returns from the division of the company into hotel operations and ownership segments are keeping French hotel giant Accor on an upward trajectory. This performance is also keeping it on the radar of potential takeover partners, analysts say.
The company’s share price is outperforming overall average improvement on the Cotation Assistée en Continu 40 stock index. At press time, Accor’s shares had risen since the beginning of 2015 by 35.7% compared to the overall CAC-40—a vehicle of the Euronext Paris stock exchange. The CAC-40 was up nearly 22% during that time frame.
Julien Richer, sell-side analyst, hotels and leisure, at Raymond James, said the stock market views Accor with much interest.
“I think for (mergers and acquisitions) Accor is a more credible option than (InterContinental Hotels Group),” Richer said. There has been talk of IHG being “vulnerable” to takeover, most recently from investment banking firm Jefferies.
Richer added Accor’s recent strong performance revealed three main points:
- The split of Accor into two entities gives it room to show its operational improvements.
- The market is looking at a potential spin-off of the two divisions.
- Accor is one of the most intriguing M&A candidates.
Richer said Accor’s HotelServices division (its operations arm) might be its most attractive buy as far as the market is concerned.
As Accor expansion in Asia has been mentioned often of late and recently it made a development deal for 350 to 400 Accor hotels in China with China Lodging Group, an Asian takeover would not be unlikely, according to Richer.
At press time, Accor had not returned requests for comments on this specific aspect of their activity.
Accor has continued in healthy fashion with its first quarter 2015 results, in which it posted a 5.6% increase in overall, like-for-like revenue to €1.2 billion ($1.3 billion). Overall growth during the preceding fourth quarter showed a 5.1% increase.
Accor has had rocky dealings with the stock market in recent years, most notably with Eurazeo and Colony Capital, which, reports said, ended with the August 2013 appointment of Accor CEO Sébastien Bazin who formerly headed up Colony Capital.
The stock market’s Accor love affair
Earlier this year, Eurazeo and Colony Capital sold a large chunk of Accor stock, which led to a temporary drop in Accor’s share price.
Virginie Morgon, deputy CEO of Eurazeo, said in a press statement accompanying this 25 March sale that “Accor has activated several value creation levers over the past 18 months. … Accor has strong value appreciation prospects, tied, in particular to further restructuring of its real estate assets and an upturn in the economic cycle in Europe.”
Loïc Sabatier, research analyst, airlines and hotels for MainFirst Bank, said favorable results had emerged rapidly from Accor’s division of its ownership and operating divisions.
“The restructuring of the group, a little more than one year ago now, delivered quite quickly, faster than expected, and its 2014 portfolio buy-back from Moor Park and AXA, which was quick in execution, provided more positive impact on earnings and gave Bazin definite credibility,” Sabatier said.
“And second, in my view, the improvement in (revenue per available room) that has been in momentum has given Accor increased operating leverage,” Sabatier said.
Sabatier thought the Eurazeo and Colony Capital move was solely to free up capital and denied Accor had invested too heavily in buy-back operations.
“In one part, Accor’s borrowing was to refinance at cheaper rates, the other part via hybrid bonds (mezzanine financing), so that will not impact the (profit and loss) and results. (Accor) has shown very good arbitrage,” Sabatier said.
“Accor is seen in France, and it is a justified view, to have successfully navigated very well its own micro-economic recovery via company-specific deliverables,” Sabatier added.
Market wobbles
There have been a few wobbles in specific markets for Accor as outlined in its Q1 2015 numbers.
Two in Europe giving pause for thought are France (constituting approximately 30% of revenue), where Accor is still feeling the effect of rising value-added-taxes (sales taxes), and London, of which Sophie Stabile, speaking at a 16 April press conference accompanying the first-quarter numbers, said the strengthening pound sterling was “especially affecting the weekend break.”
Accor mentioned specifically its tax concerns during its news conference announcing full-year 2014 results published in February.
Collectively during the first quarter, Accor’s upscale and luxury hotels in Paris enjoyed an 8.2% increase in occupancy and 13.4% increase in revenue per available rooms as reverse currency exchange allowed guests to scale up.
Accor’s Stabile said in the Q&A session of the news conference that euro currency fluctuations did not overly hurt the company in the first quarter, as its mixture of business to leisure customers is 60% to 40%.
“The performance of upscale and luxury in France is strong, and the uplift in occupancy has been impressive, more than 15%, thanks to good weather and renovated properties,” Stabile said.
She had more concern with Brazil, where inflation sits between 7% and 8%.
“Concerning trends in Brazil, we are not too optimistic,” Stabile said, who added that Accor was confident of delivering its projected levels in 2015.
“London may be problematic, but looking at our booking profile, the only problem we have is that London is penalized by the weak euro,” Stabile added.
Stabile declined from stating full pipeline numbers but said the overall picture was “strong” and “by the end of full year very strong, some 7,000 rooms.”
“Fifty percent of (full-year) development is in Asia-Pacific and via management contracts,” Stabile said.
Also, HotelInvest showed 4.8% like-for-like growth to €1.1 billion ($1.1 billion), while HotelServices also posted improvement, up 7.6% in comparable revenue to €290 million ($311 million).