Equity Analysis /
Croatia

Arena Hospitality Group: Cautious recovery in uncertain times

  • Target price of HRK 330 per share and a BUY recommendation based on a mix of DCF (70%) and peer analysis (30%)

  • Revenue in 2022 to exceed 2019 levels, with profitability following closely. AHG to continue a strong investment cycle

  • Croatian assets are well-positioned to withstand any disruptions, Germany & CEE region offers diversity

Tea Pevec
Tea Pevec

Head of Research

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InterCapital
4 April 2022
Published byInterCapital

Recovery in tourism and positive developments on the CAPEX is supportive of a higher price, but current inflationary and geopolitical pressure could impact our estimate. However, the Company has proven its ability in dealing with uncertainty, and as such, we value AHG at HRK 330 per share, giving it a BUY recommendation.

Revenue in 2022 to exceed record 2019 levels, with profitability following closely. Compared to our last estimate, we expect the Company's revenue to exceed 2019 levels on the back of a strong summer tourist season, coupled with the opening of Hotel Brioni. Combined, this will drive the occupancy rates, ADR, and accommodation revenue in Croatia above the levels seen in the record 2019. At the same time, current geopolitical and inflationary pressures would have a higher impact on the Company's EBITDA, and as such, we see it slightly below 2019 levels even with the addition of new assets. By 2024E, we estimate the EBITDA margin to reach 30% and remain steady at that level going forward.

AHG to continue its strong investment cycle. With the Company's investments increasing steadily over the last 2 years amounting to a combined HRK 584m, we expect the Company to continue fueling this, and the CAPEX to remain at app. HRK 300m in 2022E, and decreasing to HRK 232m by 2023E. This takes into account all the current investments into assets the Company is executing: Lease hotel in Zagreb, FRANZ Ferdinand, art'otel Budapest, 88 Rooms Hotel Belgrade, as well as a potential for new acquisitions, which the Company is actively monitoring for. Combined, we estimate the Company will invest nearly HRK 1bn by 2026E.

Croatian assets are well-positioned to withstand any disruptions.In 2021, the Croatian assets proved very resilient to the impacts of the pandemic. Even with the current geopolitical developments and the inflationary pressures they exacerbate, we expect the Croatian assets to have a strong year in 2022E, and the subsequent period. Also, most of the Croatian assets are located in Istria, which is within driving range of the source markets (the CEE region) where most of the tourists come from. As we do not expect any disruptions by the pandemic, we estimate that the revenue will exceed HRK 790m in 2022E, and surpass HRK 1bn by 2024E.

Germany & CEE region offers diversity. Germany & CEE region should recover as well, albeit at a slower pace than Croatia. The addition of FRANZ ferdinand will also have a positive impact on the diversity and the bottom line of the Company. However, we do not expect business travel to recover to pre-pandemic levels anytime soon. As such, we estimate occupancy rates, ADR, and acc. revenue to stay below 2019 levels even by 2026E. Even so, a diverse set of assets across multiple markets will add resilience to the business mix, allowing the Company to better withstand any inflationary/pandemic/geopolitical disruptions.