|Shares Out. (in M):||172||P/E||0||0|
|Market Cap (in $M):||690||P/FCF||0||0|
|Net Debt (in $M):||37||EBIT||0||0|
Radisson Hospitality AB (“RADH”) is European-focused, asset-heavy hotel operator trading at an attractive EBITDA multiple (4.2x-6.4x) and a high free cash flow yield (10-15%) with a high-quality CEO and an achievable turnaround plan that will act as a catalyst to re-rate the stock. RADH is essentially unlevered and equity upside is 50-100+% if RADH executes its turnaround plan and re-rates to peers.
Business Description: Radisson Hospitality AB (“RADH”) is a Swedish-listed hotel operator founded in 1960 and headquartered in Brussels, Belgium that leases (21% of rooms), manages (52%), and franchises (27%) hotels in mostly Europe (17.6% of rooms in Nordics, 32.5% in Western Europe, 30.2% in Eastern Europe) as well as some Middle East and Africa (19.7%). Radisson operates a portfolio of 369 hotels with 81,132 rooms with an average daily rate of €109 and occupancy of 69%. The company was recently rebranded to Radisson Hospitality from Rezidor Hotel Group in an effort to unify the Radisson brand under which essentially all of its hotels operate. HNA Group currently owns 100% of RADH parent Radisson Hotel Group (f.k.a. Carlson Rezidor Hotel Group), which operates over 930 hotels in the Americas and APAC. Radisson Hotel Group owns 51.15% of RADH and HNA directly owns 18.5% of RADH for a total stake of 69.65%. HNA announced on August 9, 2018 an agreement to sell its ownership of Radisson Hotel Group and its stake in Radisson Hospitality to Jin Jiang International, a Chinese hospitality conglomerate controlled by the Chinese government that also owns 12% of France’s Accor SA.
CEO Background and RADH Turnaround: Federico Gonzalez was appointed CEO of RADH in May 2017. He began his career at Proctor & Gamble where he was for 16 years followed by Deputy General Manager of Disneyland Paris. He was most recently CEO of Spanish hotel operator NH Hotel Group (“NH”) from 2012 to 2016 where he led a successful turnaround in which EBITDA margins improved from 7.0% to 14.8%, driven by 4 main factors:
Occupancy: Occupancy improved from mid-60% to a high of 70.8% in 2017 driven by hotel improvements as well as an optimization of the portfolio through lease cancellations and sale/purchase of assets
As a result, RevPAR (ADR x Occupancy rate) in 2017 reached €67.4/night versus the ~€50/night average pre-2012.
As a result of room expansion (5.1% 5yr CAGR) and RevPAR growth, revenue also grew at a 3.7% 5yr CAGR which drove margin expansion.
Exiting Leases: NH exited 27 and restructured 109 unprofitable leases out of 200 leased hotels (68% of leased hotels; 378 total hotels). As a result, rental expense as a % of sales declined from 22.4% in 2012 to 20.1% in 2017.
Reducing Personnel Costs and Direct Management Expense: NH optimized support functions (IT, admin, commercial) and cut costs to reduce personnel costs as a % of sales from 35.5% in 2012 to 33.7% in 2017. Similarly, direct management expense fell from 35.1% of sales in 2012 to 31.4% by 2017.
RADH’s margins have consistently lagged peers’, which has created the valuation gap and the current turnaround opportunity. EBITDA and EBIT margins have averaged 9.2% and 3.1%, respectively, over the last 5 years versus comps at ~14% and ~8%, respectively. In January 2018, Federico outlined a 5-year turnaround plan for RADH which is similar to the turnaround at NH. The key initiatives of the plan are: 1) improving ADR by refurbishing existing hotels and expanding the “Radisson Collection” line to target the upper luxury segment, 2) exiting 14 loss-making leases, which generated €15.5MM in EBITDA losses in 2017, 3) cutting costs as a result of portfolio optimization, restructuring support functions, outsourcing of housekeeping, etc. Given Gonzalez’s experience at NH and the similar profile of turnaround, RADH seems well-positioned to benefit from improving margins and revenue as management has outlined, resulting in ~€90MM of EBITDA improvement over 5 years:
Comps / M&A Potential:
Other European-focused, asset-heavy hotel chains at similar price-points to Radisson include NH, Scandic Hotels (“Scandic”), and Melia Hotels (“Melia”). They trade at an average of 10.5x 2017 EBITDA and 6.4% 2017 levered FCF yield today and have traded at an average of 11.2x EBITDA over the last 13 years (below).
The author is presenting the views of an investment firm that has a material long position in the securities of the company discussed herein. The author is not otherwise affiliated with such company, including as an employee, director or consultant. The views expressed herein are provided solely for informational purposes and do not constitute an offer to sell, or the solicitation of an offer to buy, any security. The information provided herein is not intended to be, and should not be, relied upon as an investment recommendation in connection with any investment decision. The contents of this message should not be construed as legal, tax, accounting, investment or other advice. No representation, warranty or undertaking, express or implied, is given as to the accuracy or completeness of the information or opinions contained herein by the author or its affiliates and no liability is accepted by such persons for the accuracy or completeness of any such information or opinions. The information and opinions contained herein are provided as of the date this message is originally posted. The author has not independently verified all information contained herein and has no obligation to update any of the information provided. The views expressed herein are subject to change without notice at any time and the author and its affiliates may trade in any manner in the company’s securities, whether consistent or inconsistent with the information provided herein, as they deem appropriate. Past performance of a security is neither indicative nor a guarantee of future results of such security. There can be no assurance that an investment in the company will be profitable or that the assumptions regarding future events and situations will materialize or prove correct.
Turnaround story driving improvement in EBITDA and FCF, potential takeout