Barbados hotels operator Elegant Hotels (EHG:AIM) could still be a takeover target imply analysts, despite a failed approach by Melia Hotels.
Elegant has confirmed that Melia made a proposal to buy the business in an all-cash deal, yet says the talks have now been terminated and that Melia doesn’t intend to make a alternative bid.
Media reports speculate the Melia approach was priced at 110p per share, valuing the business at about £98m.
Liberum analyst Wayne Brown calculates the company’s net asset value is currently 115p per share, calling Melia's approach ‘highly opportunistic’ and says it shows ‘just how cheap the group is’.
Canaccord Genuity analyst Nigel Parson doesn’t rule out a bid from another company, suggesting a rival hotel company such as Elegant Resorts could be a possible suitor, so too private equity or a property developer.
Parson believes Elegant Hotels at 84p is trading at around 50% discount to its adjusted net asset value of 185p, which he has calculated using current property valuations rather than historic ones.
Brown at Liberum says a successful takeover bid for Elegant Hotels would have to be priced at a significant premium to its net asset value.
He says Melia’s rumoured 110p price level didn’t reflect ‘the earnings upgrade potential, the unique assets the group has, its higher market share on Barbados and the earnings opportunity for its sales, marketing and management contracts’.
‘CREDIBLE PLAN’ TO REALISE VALUE
Canaccord’s Parson believes that Elegant Hotel’s rejection of the takeover offer suggest it has a ‘credible plan’ to realise value.
He supports the implied valuation gap between the share price and net asset value, highlighting the hotel operator could steal market share with its branded offer in an area where competition is fragmented.
Parson flags Brexit as a key issue for Elegant Hotels, whose balance sheet is ‘no longer in the best shape,’ which he argues is hampering prospects when it should be accelerating growth.
He suggests the firm should refinance its debt and cut its high dividend of around 8%.
