Mantra, Australia’s 2nd largest operator of hotels and resorts, has delivered a first-half profit that was 15% higher than last year. Available rooms grew 11%, occupancy rates expanded 230 basis points to 82.3%, and the average room tariff rose 3%.
This growth has been driven by acquisitions and favourable industry dynamics; 125,000 short-term Chinese and Indian visitors now arrive in Australia each month, and this has grown 20% pa over the past 5 years. Despite all this, Mantra’s share price has almost halved since December 2015.
An obvious area for concern regards Mantra’s properties that overlap Airbnb’s expanding coverage. Initial estimates by Mantra are that this overlap is just 2%, however the thematic has kept prospective investors at bay.
In addition, short sellers have increasingly targeted the 13% of Mantra’s rooms that are located in the mining exposed cities of Perth, Darwin and Brisbane. We are wary about the disruptive impact of Airbnb, however we feel that this is more than catered for by the 40% PE discount that Mantra trades on versus its global hotel peers.
We are also picking up signals that activity in the mining cities is levelling out. As a result we are confident that Mantra can deliver EPS growth in excess of 5%pa over the coming years.
We have recently added Mantra to the K2 Australian and K2 Australian Small Cap portfolios as we feel it is attractively priced below 15 times next year’s earnings.