Earnings Report /
Croatia

Valamar Riviera: Q3 Sales in Line, 2022 Bottom Line to Double YoY

  • 9M 2022 was in line with our expectations of a 50% YoY increase in top-line and decrease in operating profitability

  • Given the current inflationary pressures, operating profitability already suffered, and we expect it to continue

  • On the level of 2022E, we expect a decrease in EBITDA margin by 340bp and decrease of net income by app. 15% vs. 2019

Tea Pevec
Tea Pevec

Head of Research

Follow
InterCapital
2 November 2022
Published byInterCapital

9M 2022 was in line with our expectations of a 50% YoY increase in top-line and a continued trend of decrease in operating profitability compared to “benchmark 2019” when similar level of operations and no support measures were evidenced. EBITDA margin was down 223 bp compared to 9M 2019 as operating expenses (+19%) grew higher than op. revenue (+14%). On the level of 2022E, we expect a decrease in EBITDA margin by 340bp and a deterioration of the bottom line by app. 15% compared to 2019.When compared to 2021, we expect the bottom line to more than double and amount to between HRK 200m and HRK 240m.

Operating revenue increased 13% compared to 2019 due to a better sales mix as the Company was constantly upgrading its capacity (especially camping) and due to an increase in prices of its accommodation and services. As a result of both, the Average Room Rate (“ARR”) in 9M 2022 increased by 20% compared to 9M 2019, while the number of units sold decreased by 5% and occupancy was down by 154 bp to 43.6% (vs. 45.2% in 2019). Also, the capacity offered is down 1.6%, as Valamar is no longer consolidating Hotel Obertauern and some of its economy capacity is no longer sold due to unprofitability. On the other hand, the Company has higher management fees as it is managing more hotels whose results are not consolidated like all the three Austrian hotels and all Stari Grad, Hvar capacity. Therefore, the Company is now showing adjusted ARR data where Helios Faros and Valamar Obertauern (after 29 November 2021) are not included, and non-commercial properties/data are excluded. ARR-adjusted data is given only for 9M 2022, 2021, and 2019, so we are not presenting 3Q as no comparable date is given.

The Company has also completed a capital increase and the sale of three Dubrovnik hotels to Imperial Riviera, which is why its minority interest and net income to minority is increasing. In 9M 2022 net income to minority interest has increased 46% YoY and it amounted to HRK 53m, while it is 2.5x higher than 9M 2019. Valamar’s net debt has also decreased 23% YoY and 41% compared to 2019 and now TTM Net debt/EBITDA stands at 1.9x. We find all these strategic moves very favourable to the Company’s balance sheet. So in 2022 Valamar is not the same company it was in 2019 and therefore results are not completely comparable.   

Given the current inflationary pressures, operating profitability already suffered, and we expect this trend of decrease in operating profitability to continue. The potential upside is expected from management fee sales, while further increases in rates and resolution of tourist property concession fees could negatively influence share price. The results on the net income level are in line with our last company update, but our research was done in a much lower interest rate environment, so we will re-evaluate our recommendation.