A hike in the VAT rate for hospitality services announced in Ireland's Budget is expected to hit Dalata Hotel’s (DAL) earnings before interest, tax, depreciation and amortisation (EBITDA) by 2.7% in 2019.
Shares in Dalata, one of our Great Ideas, have dipped 3.5% to 534p as VAT in the hospitality sector will rise from 9% to 13.5%.
Gambling company Paddy Power Betfair (PPB) is also under pressure after the Irish government announced national gambling turnover tax will double from 1% to 2% on sportsbooks.
Davy Research analyst Michael Mitchell has crunched the numbers and believes EBITDA will fall by more than 4% in 2018 as approximately 10% of revenues are generated in Ireland.
In fact the doubling of the tax is expected to hit earnings by £20m, or 4.3% in 2018 and 2019.
Mitchell flags Ireland now has one of the more penal regulatory backdrops for gaming globally at around 30% tax on online sales.
Shares in Paddy Power are down 2.8% at £63.15.
VAT CHANGE TO IMPACT DALATA
Davy Research’s Joseph Quinn assumes 50% of Dalata's room revenue is affected which a good chunk passed on to businesses and tour groups.
While the impact appears pretty modest, the analyst warns Dalata may reassess its hotel pipeline projects in the Dublin area after 2019.
According to Quinn, a cut to hospitality services VAT from 13.5% to 9% was supposed to be a temporary measure but ended up lasting for seven years.
Elsewhere in the Budget, Ireland has making Brexit preparations with over €110m earmarked for government departments to tackle issues such as customs requirements.
The Irish government is also planning a loan scheme for small medium-sized enterprises and is allowing an extra 100,000 to become eligible for free GP care.
