Barbados hotels operator Elegant Hotels (EHG: AIM) failed to maximise increasing visitor numbers to the island. Revenue for the year to 30 September 2016 declined 5.2% to $57m.
Shares in the firm slip 2.2% 79p despite much stronger pre-tax profit, which nearly tripled to $15.8m, although that was largely thanks to lower exceptional costs. Strip those out and underlying operating profits fell 14.5%.
Management says that arrivals from its key customer base, the UK, rose 2.2% last year overall but most of these new holiday makers have booked villas or low cost hotels rather than stay in the upmarket hotels that Elegant runs.
Revenue per available room (RevPAR), a performance metric that assesses how well a hotel is able to fill its rooms, dropped from $255 to $238 over the same period.
If visitors continue to stay at budget-friendly hotels this could mark a worrying trend for the hotel operator, which currently owns six hotels.
DIVIDEND DANGER?
Elegant Hotels does, for the time being, remain committed to dividends, paying 7p per share. But this could well change down the line if debt keeps rising, an issue Shares flagged in October.
Net debt jumped sharply from $40.8m to $61.8m, although this is in part due to the acquisition and refurbishment of Waves Hotel & Spa in Barbados.
For the time being, Liberum analyst Wayne Brown remains positive, keeping the stock on his ‘buy’ list. However, it's worth noting that according to his calculations, investors should not expect the payout to grow for the next two years.
Brown also anticipates further downward pressure on profits in the near-term, forecasting pre-tax profit to slump to $11.9m this year before staging a hoped-for recovery.
