Earnings Report /
Croatia

Arena Hospitality Group: Record quarter despite the macroeconomic environment

  • In Q3 2022, total revenue amounted to HRK 512.8m, an increase of 43% YoY. Compared to 2019, this is an increase of 21%

  • EBITDA increased by 68.9% YoY and amounted to HRK 274.6m, while compared to 2019, this is an increase of 10%.

  • Finally, the net income amounted to HRK 132.7m, an increase of 18% YoY.

Tea Pevec
Tea Pevec

Head of Research

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InterCapital
10 November 2022
Published byInterCapital

9M 2022 includes the third quarter, by far the most important one for Croatian tourism. Q3 2022 marks the 1st quarter since 2019 in which Arena has been able to operate normally. As such, in Q3 2022, total revenue amounted to HRK 512.8m, an increase of 43% YoY. Even compared to 2019, this is an increase of 21%. The Q3 growth was driven by a higher occupancy rate of 65.5%, a higher ADR of HRK 806, and a RevPAR of HRK 528.3. On the 9M 2022 basis, total revenue increased by 78% to HRK 739.6m. Occupancy also improved to 45.9%, while the ADR increased to HRK 732.7. The growth was supported by all regions, with Croatia increasing the total revenue by 55.4% YoY to HRK 591m. Occupancy increased to 46.3%, while the ADR improved by 19.3% to HRK 699.2. Germany’s revenue increased by 251% YoY and amounted to HRK 109.2m, with an occupancy rate of 50.4%, and an ADR of HRK 956.4. Compared to 2019, the Q3 2022 ADR is 36% higher. CEE region also experienced positive growth, with total revenues increasing to HRK 33.9m (9M 2021: HRK 1.8m), an ADR of HRK 806.5, and an occupancy rate of 30%. Top-line growth was supported by stronger business volume as well as by higher prices.

Even so, OPEX also increased significantly, to HRK 465m, an increase of 84% YoY. This excludes the one-off expense of HRK 12.3m from Hotel Brioni and other assets. This was driven by higher material costs (+78%) and staff costs (+93%) YoY. The inflationary environment is having a massive role in this, but the increased business volume, especially in terms of the required workforce and material for the now expanded premium segment of the Company also played a role. EBITDA increased by 68.9% YoY and amounted to HRK 274.6m, while compared to 2019, this is an increase of 10%. This would imply an EBITDA margin of 44.3% on a 9M basis, while in Q3 2022, it amounted to 60.1%. The net financial result amounted to HRK -45.5m, mainly because of negative FX differences, while last year the FX had a positive impact. Finally, the net income amounted to HRK 132.7m, an increase of 18% YoY. As H1 2022 Arena had negative net income, Q3 2022 contributed HRK 220.9m (+30% YoY) to the overall income. Arena continues investments into Arena Franz Ferdinand, and the completion of the hotel in Zagreb is expected in Q2 2023, delayed due to supply chain issues. If the current trend continues, the Company’s results will be in line with our FY 2022 estimates, both in terms of revenue and overall profitability.

9M 2022, and especially Q3 2022, marks the best quarter in the Company’s history, with growth recorded across all segments and regions. Inflation is still presenting a challenge, but Arena is managing it well. Arena recently also launched its share buyback program, which is also positive for investors. We find the results supportive of our target price of HRK 330, which is 29% above the current price. However, our report was published in April when the Company’s share was priced much higher due to a lower interest rate environment. As such, we keep our BUY recommendation.