Earnings Report /
Croatia

Valamar Riviera: FY 19 – Strong growth in top and bottom line

  • Sales growth of 9.1% from an increase in ADR of 5% and in number of units sold at 4.2% yoy

  • EBITDA increased by 10% yoy at HRK769mn; net tax income due to tax incentives for investments at HRK73.4mn

  • Increase in top and bottom line supportive for the share price and we retain our TP of HRK41.6 per share; Buy

Tea Pevec
Tea Pevec

Head of Research

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InterCapital
2 March 2020
Published byInterCapital
The company showed strong growth in operating income amounting to HRK2,207mn, which is in line with our estimates. Operating income increased 11.3% due to growth in sales revenues of 9.1% and other operating revenue growth of HRK47mn. Already strong 9M 19 results were supported by a strong Q4 when accommodation revenue grew by 8% yoy. Sales growth of 9.1% came from an increase in ADR of 5% and in number of units sold of 4.2% yoy. Valamar realised sales growth mainly by investing and improving its sales mix towards higher margin accommodation, and by adding capacity stemming from acquisitions. Overnights increased by 4.9% yoy, which is above Croatian average (2.43% yoy). Overall occupancy rate in the period increased by 200bps to 38%.

EBITDA amounted to HRK769mn, which represents a 10.9% yoy increase, while adjusted EBITDA has amounted to HRK758mn recording a growth of 8.1% yoy. This is in line with company’s guidance and with our estimates. This EBITDA was adjusted for severances and extraordinary revenues and expenses. Operating expenses growth of 9.3% yoy are in line with our estimates and they were triggered by the increase in material costs (+10.4%), increase in total staff related costs (+7.7%), increase in other costs (+10.3%) and due to the consolidation of Hoteli Makarska and Valamar Obertauern. When adjusting the operations for Hoteli Makarska and Valamar Obertauern for comparability’s sake, operating expenses grew 6%.

Depreciation expense was 10% above our estimate and it amounted to HRK474mn(+15.6% yoy) as capex was 35.7% yoy higher. Realised capex (HRK954mn) was 11% above our estimate as part of 2020 capex was carried over to 2019. Below the operating line, the net financial result deteriorated to -HRK37.8mn. Majority of it (78%) pertains to a decrease in unrealised positive exchange rate differences regarding long-term loans due to the absence of the usual appreciation of the Croatian kuna versus euro in Q1 19 because of an unusual low exchange rate difference in EUR/HRK in 2018. The rest comes from higher interest expense, following the increase in leverage of the company (+299.2mn from end-2018). On the other hand, due to strong cash creation and increase in EBITDA, net debt/EBITDA ratio decreased to 2.85x. In Q4, the company realised net tax income due to tax incentives for investments, and this amounted to HRK73.4mn for the full year figure. As a result, net income after minority increased by 20.9% yoy to HRK284.5mn. 

Operating revenue and operating profitability are in line with our estimates. A part of 2020 investments was carried out in 2019, which shows that company is determined to achieve announced business plan. We have estimated 7% higher net financial result, but we have not considered tax incentives. We find the increase in top and bottom line supportive for the share price and we retain our target price of HRK41.6 per share. Buy.